Bharti Airtel Ltd has received a booster shot to take on billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd in the heated telecom battleground after the government on Tuesday approved its application to increase foreign direct investment in the company to 100%.
The approval allows the company, which counts Singapore Telecommunications Ltd, or Singtel, as a significant shareholder, to raise more capital from existing or new foreign investors if needed.
“The government approval allows increase in foreign investment in Bharti Airtel and since this kind of investment is generally long term in nature, it will also make the company’s share price less volatile," Rajiv Sharma, head of institutional equity research, SBICAP Securities, said.
“Bharti Airtel has always been a stable company and its net debt to Ebitda (earnings before interest, tax, depreciation and amortization) has never crossed 5 times. Plus the lending of credit is always in the context of future growth prospects. With yesterday’s approval, Bharti Airtel will not have to worry too much about chasing new investors for a future fundraise," Sharma said.
Earlier this month, Jio became the number one telecom company by revenue share and subscriber base, a position which rival Airtel held for over a decade.
The Reserve Bank of India has already permitted overseas portfolio investors to invest as much as 74% in Airtel, the company said in an exchange filing on Tuesday.
To be sure, earlier this month, the company raised $3 billion through a qualified institutional placement (QIP) and overseas bonds to pay dues related to adjusted gross revenue (AGR).
Airtel, hit by an apex court verdict mandating it to pay ₹35,586 crore to the department of telecommunications (DoT) by 23 January, will use bulk of the proceeds from the QIP to meet this liability.
Last month, the DoT also approved the prices for the spectrum auction scheduled to be held by April. The band allocation for 5G airwaves of 3,300-3,600MHz has been priced at ₹492 crore per megahertz.
For efficient 5G services, a telecom operator would need at least a block of 75 MHz-100 MHz, which would cost between ₹36,900 crore and ₹49,200 crore. If Bharti Airtel is keen to roll out services, it would need to raise more funds to buy 5G airwaves. The company has already submitted applications to the DoT to hold trials for 5G.
“In the current scenario, the willingness of domestic banks to lend is poor. However, Bharti Airtel is best placed to raise funds. Given that debt is difficult to raise, equity is usually seen as the preferred route," said Rajan Mathews, director general, Cellular Operators Association of India.
Bharti Airtel is also in the process of divesting its tower assets with its arm, Bharti Infratel, awaiting approvals to merge with Indus Towers.
Analysts also expect the coming year to see some recovery for operators given that they have already raised mobile tariffs by up to 40% in December.
“Bharti Airtel has recently raised $3 billion and, in our view, is well positioned irrespective of the outcome of the AGR decision as the risk of AGR-related payment gets more than offset by potentially higher revenue market share. We believe higher revenue, moderation in capex, stronger cash flows and lower leverage keep Airtel attractive despite the recent rally," BNP Paribas said in a 21 January note.
Currently, 100% FDI is allowed in telecom, of which up to 49% investment in a company can be done through the automatic route. The inflow of overseas investment beyond that requires approval from the government.