Airtel sells 10.3% stake in Infratel for ₹6,194 cr
Proceeds from sale to be used to repay debt, counter Rel Jio
NEWDELHI: Bharti Airtel Ltd sold a 10.3% stake in its tower unit to a consortium of investors to raise ₹6,193.9 crore, funds that India’s largest telecom operator plans to use to pare debt and counter competition from an aggressive new entrant.
The buying consortium includes private equity firm KKR & Co and Canada Pension Plan Investments Board.
The deal was struck at ₹325 a share, a 4% premium to Bharti Infratel’s ₹312.55 closing price on Monday.
The transaction will provide Bharti Airtel much-needed funds as it battles billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd, which has signed up more than 100 million users since it started offering free voice and data services in September. Jio’s entry also prompted Vodafone Group Plc to initiate merger talks of its Indian operations with rival Idea Cellular Ltd, a deal that would create India’s largest telecom operator, surpassing Bharti.
“The stake sale in our view will give Airtel flexibility to step up its capital expenditure for the India wireless business to expand its data network coverage and capacity to counter Mukesh Ambani-promoted Reliance Jio,” Morgan Stanley analysts Parag Gupta and Amruta Pabulkar wrote in a note to clients on Tuesday.
Bharti Airtel said it will primarily use the proceeds from this sale to reduce debt. Paring debt will, in turn, reduce its outgo in interest payments.
As of December 31, Bharti Airtel had net debt of ₹97,400 crore, according to a March 28 Morgan Stanley report.
“The deal which has happened is at a low valuation, which is quite obvious. But, Bharti had no choice but to reduce debt especially after what Jio has done to the market,” said Dharnesh Kant, head of retail research at Motilal Oswal Securities Ltd. “Data has become so cheap that ARPU (average revenue per user) will not improve anyway. You have to pay down your debt on your books and that’s how you will survive.”
In October, Bharti Airtel’s board authorised a committee to evaluate sale of a significant portion of its stake Infratel stake. At a March 15 board meeting, the company decided that it would not sell a controlling stake for now but will transfer 21.6% into Nettle Infrastructure, a wholly owned subsidiary, which it could sell to a potential investor.
Chairman Sunil Bharti Mittal said that the investment by a consortium of marque long-term investors further reinforces the positive outlook for the telecom infrastructure sector. “The longterm investment horizon of the investors aligns well with the capital needs and business cycles of Bharti Infratel.”
This transaction makes it KKR’s second investment in Bharti Infratel. Previously, the funds managed by KKR had invested in Bharti Infratel between 2008 and 2015. On completion of the latest transaction, Bharti Airtel’s equity holding in Bharti Infratel will reduce to 61.7%.
Bharti Infratel reported revenue of $1.8 billion in 2015-16. Bharti Infratel owns 42% in Indus Towers—India’s largest telecom tower company which is a joint venture of Bharti Infratel, Vodafone India Ltd and Aditya Birla Telecom (Idea Cellular).
Bharti Infratel owns 89,791 towers—38,832 of its own and 50,959 towers represented by the 42% stake in Indus Towers, Deloitte said in a June 2015 report.
Bharti Infratel has a standalone market share (in terms of installed tower base) of 9.8%, and 40.8% market share together with Indus Tower, as of 2014-15.