India’s Bharti Airtel to raise $2.8bn as it readies 5G rollout

Airtel’s unexpected rights issue has led market participants to speculate over its reasoning, such as the need to raise funds to expand its network or absorb customers from troubled Vodafone Idea.   © Reuters

ROSEMARY MARANDI, Contributing writer | India

MUMBAI — India’s No. 2 wireless telecom operator, Bharti Airtel, has said it will raise 210 billion rupees ($2.85 billion) via a rights issue, as it builds up its war chest to strengthen its network and prepare for the rollout of 5G technology.

On Aug. 29, the board of Bharti Airtel approved the rights issue, under which eligible shareholders will receive one share for every 14 shares they hold. The price is set at 535 rupees per share, including a premium of 530 rupees per share, Bharti Airtel said in a filing with the Bombay Stock Exchange.

The company said its board “comprehensively reviewed the industry scenario, business environment, financial and business strategy of the company, and approved the company’s plan to raise further capital.”

The promoter and promoter group, as company founders are called in India, which includes the Mittal family and Singapore’s Singtel, will collectively subscribe to the full extent of their aggregate rights entitlement, or in proportion to their holdings, according to the stock exchange filing. The promoter group holds around 56% of the telecom’s company’s shares.

The board has also set up a special committee of directors to decide other terms and conditions, including the issue period and the record date. The company last raised funds via a rights issue in May 2019, when it raised 250 billion rupees.

Analysts were surprised by the announcement, as the company has given no indication of wanting to raise funds during an earnings call earlier this month. Vivekanand Subbaraman, an analyst with Ambit Capital, said he was not sure what changed after the earnings call, but added that one possibility was the government’s insistence on holding an auction of 5G spectrum sooner than expected.

“Another scenario is the outcome [that] Vodafone Idea doesn’t survive,” he said. “By disclosing the sum of the rights issue, they have indicated how much they will need to invest to accommodate Vodafone Idea customers, especially 2G users.”

In a note last Thursday, Jefferies also said it was surprised by the fundraising plan because the company had no major payments due immediately. However, it noted that the move could be in line with buying spectrum from Vodafone at distressed rates, or to invest in expanding its network capacity for migrating Vodafone Idea subscribers.

Already both Bharti Airtel and Reliance Jio Infocomm have grabbed customers from beleaguered Vodafone Idea. In June, Reliance Jio added 5.47 million subscribers and Airtel 3.81 million, while Vodafone Idea lost 4.28 million, data from the Telecom Regulatory Authority of India showed.

Earlier this month, Kumar Mangalam Birla stepped down as chairman of Vodafone Idea after offering to sell his stake in the Indo-British venture to India’s government. The telecom company has struggled to compete with Reliance Jio Infocomm, which entered the market in 2016. Vodafone Idea ranks third in India’s telecom market.

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