Bharti Airtel to Raise Rs 21,000 Crore Via Rights Issue

On Monday, Bharti Airtel announced its plans to raise up to Rs 21,000 crore by selling shares to existing investors. In light of its statutory dues, the need to work on its network and imminent 5G spectrum auction and rollout, the second largest telco seeks to raise cash.

Airtel Decides on the Fundraising Instrument

Notably, in May 2019, Bharti Airtel had raised Rs 25,000 crore; this is the telco's second fundraiser in 27 months. So far, it has raised about $9.8 billion via equity, debt, stake sales and asset sales.

Notably, the telco held a board meeting on 27th August to decide upon the instrument for the fundraiser. In a statement, Bharti Airtel said that its board "comprehensively reviewed the industry scenario, business environment, financial/business strategy of the company and approved the company’s plan to raise further capital".

Under the current offer, shareholders will receive 1 new share for every 14 held at Rs 535 each, per the telco; the offer comes at almost 10% off from the closing price of Rs 593.95 on the BSE on Friday.

The promoters of the telco will also subscribe to the full extent of their aggregate entitlement. The telco said that they will also go for any unsubscribed shares in the issue. The promoter groups — the Mittal family and Singapore’s SingTel — own nearly 56% of the telco. Of this, the Mittals own 24.13%, while SingTel holds 31.72% of Bharti Airtel's share. The public holds the rest of the share in the company.

All the subscribers will need to pay 25% on application, and the rest in two more calls as the telco needs. However, a subscribers will have to pay in full within 36 months. Also, the telco’s board has constituted a special committee of directors to decide other terms and conditions for the share issue.

Bharti Airtel Preparing for 5G

Nitin Soni, Fitch Ratings senior director said that, "the rights issue will strengthen Airtel's balance sheet and is a clear positive signal from Bharti promoters about the telco’s growth prospects, and the likelihood of it grabbing more market share from struggling Vodafone Idea in coming quarters”. He added that the funding will also give the telco “the necessary headroom” to increase capex on its network and participate meaningfully in the 5G spectrum auction.

Per people in the know, most of these funds will go in paying up Bharti Airtel's high-cost debt.

As of end-June, the company had net debt of around Rs 1.6 lakh crore. At three times operating profit, this was deemed ‘comfortable’ by industry analysts.

The deferred payment structure will allow the telco to call for funds as and when needed. This is important; per Goldman Sachs, Bharti Airtel needs to pay Rs 4,100 crore in AGR dues come March. Along with this, the telco has to pay Rs 8,500 crore in spectrum fees come FY23. Along with this, Airtel has to keep putting capex in network to ensure it can capture customers from the struggling Vodafone Idea.

Also, the telco needs money to put in 5G spectrum and network. According to Motilal Oswal, the telecom sector needs to spend about Rs 1.3-2.3 trillion in capex for 5G rollout pan-India.

In a Position to Gain

Speaking of Vodafone Idea, the fundraising adds another worry to the sinking telco, as its rivals get financially stronger. This also will strengthen Bharti Airtel's balance sheet in the process.

Almost every brokerage firm has a 'Buy' rating on Airtel's stock. CLSA, Goldman Sachs and Jefferies have set target prices at Rs 730, 675 and 685, respectively.

Since viability of Vodafone Idea remains a question mark, this rights issue can prove to be a massive return for the shareholders. If Vi does sink, Bharti Airtel stands to gain market share and the stock will soar. Therefore, people who buy shares now can reap the rewards soon.

Even now, the telco's share price keeps on rising; the rights issue came days after the telco's stock hit Rs 644, an all-time high. Analysts expect Bharti Airtel to continue improving, as its Q1 results indicated.

The only worry for the telco remains is how to increase the APRU. Per the said Q1 results, the telco has an ARPU of Rs 146, which is hardly sustainable. However, the telco aims to hit the Rs 200-mark come end of year, and it will be interesting to see how it achieves that.