Is Bharti Airtel raising equity to cut debt?

Is the country’s largest telecom services provider, Bharti Airtel, exploring an issue of new shares to the public or to institutional investors to pare debt?

There was no confirmation from the company today with its spokesperson declining to comment on what he said were “speculative” reports.

The Economic Times reported this morning that Bharti is examining four options to raise funds, including one where it brings a follow-on public offer.

A person familiar with developments at Bharti told Firstpost that any of these decisions cannot be taken unless approved by the company’s board of directors. “And as far as I know, fund raising options are not part of the agenda of the upcoming board meeting on 8 August. In fact, this matter has not been on board agenda for the last four board meetings.”

He declined to be named. This person also referred to Bharti’s earlier plans such a listing the tower arm, Bharti Infratel, which were abandoned late last year due to subdued equity market conditions.

But a Mumbai-based equity analyst said it was possible that the company is exploring various options to raise funds.

“Bharti could be looking to raise about a billion dollars in equity, this cannot be ruled out. Yes, market conditions are not conducive to a public offer or other fund raising options but then, the market could get worse going forward. Our interactions with the management tell us the company is in no hurry but these options may be on its radar sometime in the near future.”

This analyst also pointed out that due to its scale of operations and healthy image in the global debt market, a company like Bharti may also shun any equity option and instead opt for raising more debt from international markets.

“Companies like Bharti can easily raise long-term debt at very low rates from the international market. Repayments would be far away and the debt pile will not sting hard.”

[caption id=“attachment_398238” align=“alignleft” width=“380”] Bharti may be examining four options to raise funds, including one where it brings a follow-on public offer.[/caption]

Another analyst said that excluding payments, the company may have to make for spectrum (conversion of existing spectrum at new, higher prices), Bharti doesn’t really need funds right now.

“The company’s cash flows remain robust. As a ballpark, right now Bharti generates $5b operating cash. Its capex requirement is $2.5-3 billion (excluding spectrum outgo), interest outgo is another $700-800million. So about $1.5 free cash is available with the company.”

He also pointed out that at current spectrum prices, Bharti will need about Rs 40,000 crore for spectrum renewal in the 1800 mhz and 900 mhz bands.

“But the government is talking of allowing deferred payments so if only a third or 25 percent of this amount is due in the first year, Bharti immediately needs only Rs 10,000-12000 crore. Also, Bharti’s overall debt has increased to Rs 70,000 crore only due to rupee depreciation…tomorrow if rupee appreciates than it will come down to Rs 60,000 crore and refinance can be done for spectrum payments”.

So until there is regulatory clarity on spectrum auctions, “it will remain an if and but scenario”. This analyst said he would not rule out an IPO for Bharti’s tower arm, Bharti Infratel to offer exit to existing investors but this won’t be a major public issue and has anyways been in the pipeline for quite some time.

The ET story says that Bharti needs to pare its debt burden which was acquired largely to fund its 2010 purchase of the African operations of Kuwait’s Zain for an enterprise value of $10.7 billion. At that time, Bharti had taken some $9 billion debt on its books. It speaks of four fund raising options: issue of fresh shares, raising a $1 billion through domestic or overseas bond sale, listing Bharti Infratel and raising upwards of a billion dollars or a QIP. Will Bharti bite the bullet now? Remains to be seen.