Home / Companies / News /  Airtel raises $400 million more from sale of Africa assets

New Delhi: Bharti Airtel Ltd, the world’s fourth largest telecom service provider by revenue and subscribers, has raised $400 million more from the sale of telecom towers in Africa, taking to $1.7 billion the proceeds from an effort to monetize its assets in the continent to reduce debt, mimicking a strategy it has adopted successfully in its home market.

India’s largest phone company will lease back the towers from the buyers, which make up 60% of the total towers the company owns in Africa, as part of the so-called asset-light approach.

Proceeds of the deals will help reduce the company’s debt, which stood at $10.7 billion at the end of June. The company took on most of the debt when it bought the Africa assets of Kuwait-based Zain in 2010 for almost $10 billion, as well as from spending on new spectrum acquisition in India and technology deployment.

The $1.7 billion it has raised from the sale of 8,300 telecom towers includes the sale of base stations in five African countries for $1.3 billion that Bharti Airtel announced in July. Bharti Airtel had an estimated 12,000 towers in Africa before the July sale, meaning that the effort to monetize assets in the continent is still a work in progress.

“Tower sales and lease back shall continue to remain a strategic priority for Airtel in all its operating countries across Africa and accordingly the balance towers will also be disposed over a period of time," the company said in a statement on Tuesday.

Bharti Airtel had big plans for Africa—a target of 100 million subscribers, up from 42 million at the time of acquisition, $5 billion in revenue, up from $3.6 billion, and $2 billion of earnings before interest, tax, depreciation and amortization, by March 2013, less than three years after the acquisition.

At the end of March 2013, Bharti Airtel only had 63.4 million subscribers in the 17 countries, with a yearly net loss of $345 million from a revenue of $3.76 billion—missing its targets by quite a bit. Two years later, things hadn’t become much better. At the end of March 2015, Bharti Airtel Africa netted losses of $585 million on revenue of $4.2 billion, with 76.2 million subscribers.

The company’s plan was to leverage the now-famous minute factory model, under which the telco outsourced almost all tasks, keeping with it only key functions such as branding and billing. This practice in India had helped Bharti Airtel keep costs to a minimum and let it offer what are probably the lowest tariffs in the world. It is still trying to replicate the asset-light strategy in Africa.

Bharti Airtel has been trying to reduce the financial burden resulting from the acquisition on its overall operations. Its focus on this has increased in the last three years after the telco started receiving flak for the delay in making the acquired assets profitable. Some analysts say it is time that Bharti Airtel cuts its losses and leaves the African continent.

“Even now, after five years of investing there, the value of the assets has come down by as much as 40%. They are in a position where they cannot sell all the assets that they bought and are being forced to break it down and sell it piece by piece. The tower deal will bring down day-to-day costs but a turnaround is still far," a Mumbai based telecom analyst with a multinational brokerage firm said on condition of anonymity.

In the 13 African countries where Bharti Airtel was looking to sell its telecom towers, only seven deals have closed; four have lapsed and two are still in the works. The sales are split between four tower companies in Africa—Eaton Towers Ltd, Helios Towers Africa, IHS Holding Ltd and ATC (American Tower Corporation). With Eaton, Bharti Airtel was in talks for selling towers in six countries; the deal for Malawi lapsed earlier this month. Two other countries were still open while deals in the remaining three had been closed.

Similarly, Bharti Airtel was in talks with Helios for selling its towers in four countries, but has seen only one deal closed, while the remaining three—in Tanzania, Chad and the Democratic Republic of Congo—have lapsed. Deals with IHS for towers in Zambia and Rwanda and ATC in Nigeria have been closed.

In July, Bharti Airtel announced that it was in talks with Orange to sell its operations in Burkina Faso, Chad, Congo Brazzaville and Sierra Leone in a deal estimated to be valued at a combined $800-900 million. These markets contribute around 15% (about $600 million) of Bharti Airtel’s total Africa revenue and generated $23 million in profit in the 2014 financial year versus an overall Africa loss of $329 million. It’s not clear if the talks have moved forward.

“It is good to see that 60% of the towers have got them $1.7 billion. The additional $400 million will be welcome in this quarter. The remaining towers could get them another $1 billion, even after a discount in the four countries where the deals lapsed," the analyst cited above added.

Bharti Airtel shares fell 0.55% to 361.70 at the close of trading on the BSE on Tuesday, while the benchmark Sensex dropped 0.2% to 27,306.83 points.

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