New Delhi: Bharti Airtel Ltd sold a 10.3% stake in its tower unit to a consortium of investors to raise Rs6,193.9 crore, funds that India’s largest telecom operator plans to use to pare debt and counter intensifying competition.
The buying consortium includes private equity firm KKR & Co. Lp and Canada Pension Plan Investment Board.
The deal was struck at Rs325 a share, a 4% premium to Bharti Infratel’s Rs312.55 closing price on Monday.
The transaction will provide 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 a merger agreement this month between Idea Cellular Ltd and Vodafone India Ltd, heralding the creation of India’s largest telecom company in a $23 billion deal.
“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.
Airtel said it will primarily use the proceeds from this sale to reduce debt. Paring debt will, in turn, reduce its interest payments.
As of 31 December, Airtel had net debt of Rs97,400 crore, according to a 28 March 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 Dharmesh 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, Airtel’s board authorized a committee to evaluate the sale of a significant portion of its Infratel stake. At a 15 March board meeting, the company decided that it would not sell a controlling stake for now but transfer a 21.6% stake to Nettle Infrastructure, a wholly owned subsidiary, which it could sell to a potential investor.
Chairman Sunil Bharti Mittal said the investment by a consortium of marque long-term investors further reinforces the positive outlook for the telecom infrastructure sector.
“The long-term investment horizon of the investors aligns well with the capital needs and business cycles of Bharti Infratel,” he said.
This transaction makes it KKR’s second investment in Bharti Infratel. Previously, funds managed by KKR had invested in Bharti Infratel between 2008 and 2015. On completion of the latest transaction, Airtel’s equity holding in Bharti Infratel will decrease 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 between Bharti Infratel, Vodafone India 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 had 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.
On Tuesday, Bharti Infratel shares closed 1.98% higher at Rs318.75 on the BSE and Airtel shares gained 0.61% to Rs340.65. The benchmark Sensex rose 0.59% to 29,409.5 points.