Rising debt led promoters to dilute holding: Sunil Mittal
Kolkata: Bharti Airtel chairman Sunil Bharti Mittal said promoters don’t like reducing holdings by choice, but the telco’s founders were forced to lower their stake as the company needed capital with its debt surging, stung by a mix of adjusted gross revenue (AGR) dues and the need to be competitive in a cut-throat market.
He added that Airtel’s move to raise Rs 21,000 crore through a rights issue would help the telco tap growth opportunities, with 5G set to hit India in 2022 and its growing digital business.
“No promoter goes down in his shareholding by choice… this industry has seen hell for the last four-five years, as many as eight to nine operators have disappeared and a very strong combined operator is struggling,” Mittal said on an investor call.
7% dilution in promoter holding
“In the face of all that, you will give us credit that we did dilution for raising more capital in good time, rather than chasing capital when none would be available.”
The promoter group — the Mittal family and Singapore’s SingTel — own nearly 56% of the telco. The Mittal family directly and indirectly owns 24.13%, while SingTel holds 31.72%. The rest is held by the public. Since May 2019, Airtel has raised $9.8 billion via equity, debt, stake sales in units and assets sales in India and Africa, which has resulted in the promoter group diluting its holdings.
The upcoming rights issue is set to dilute the promoter group stake by a further 7%, with the promoter and the promoter group committing to collectively subscribe to the full extent of their aggregate rights entitlement, or in proportion to their holding.
The issue would require Singtel and the Mittals to contribute $0.9 billion and $0.7 billion, respectively, said Credit Suisse.
“If Airtel’s latest capital raise has resulted in some drop in the promoter level shareholding, we are fine with that,” Mittal said, adding that he sees “no reason for markets to be alarmed.”
He was speaking a day after Airtel announced plans to raise up to Rs 21,000 crore by selling shares to existing investors in a rights issue.
As of end-June, the company had net debt of around Rs1.6 lakh crore. At three times operating profit, this was deemed ‘comfortable’ by industry analysts. Mittal said he would like Airtel’s debt to reduce to two times the operating profit.
Mittal said there are more monetisable opportunities in its Indus stake, in Airtel’s fibre holdings and real estate assets as well, which would all be done at “the right time, the right price and the right valuation.”
On the possible monetisation of Bharti’s digital assets, Mittal said any potential alliances or equity stake offers to key strategic global investors would only be through parent company Airtel. “Digital assets cannot be sliced and diced, and need to be kept under the mothership, as in Airtel,” he said.
Mittal was speaking in the backdrop of recent media speculation about US search giant Google likely making a substantial investment in Airtel and that top executives of both companies were thrashing out the finer details of a potential mega alliance.
The Bharti Group is in the process of restructuring its digital and telecom assets, to be able to create more monetisable opportunities. Under the new corporate structure, Bharti Airtel will hold all digital assets, as well as the telecom businesses, which are being hived off into a newly-created unit, Airtel Ltd.
Airtel’s stock closed 4.4% higher at Rs 620.35 on the BSE Monday.
“The (rights) issue will be EPS (earnings per share) accretive as yield on cash raised is likely to be higher than the 3.5% earnings yield implied by issuance on our FY23 EPS estimates,” Jefferies said in a report.
It however added that the issue also reflects weak cash flows in the telco’s standalone operations.
“Our analysis of Bharti’s standalone cash flows suggests that despite sharp rise in ebitda, Bharti’s Rs39 billion annual payment for AGR along with Rs77 billion spectrum payment starting FY23, may keep FCF (free cash flow) limited over FY22-23,” the brokerage said.
FUEL FOR GROWTH
Mittal said that while Airtel is sufficiently funded for the ongoing business, it needed additional capital.
The company has sensed “a huge growth opportunity staring at it, and a need to accelerate beyond business as usual,” which drove its need to raise equity, Mittal said. “Any delay on this (score) would have been detrimental to the fortunes of this company.”
Mittal said Airtel has the largest spectrum pool in India and with the additional funds targeted, can easily manage any potential influx of millions of new customers and a surge in data traffic, alluding to a scenario in which the sector is reduced to a duopoly.
“If many more customers were to suddenly come into the Airtel fold, we are in good shape to carry them through our fibre and mobile networks… but this (upcoming) Rs 21,000 crore fundraise gives us the leverage we need, the fuel to grow the extra mile that we can sense is around the corner,” he said.
Mittal didn’t directly comment on Vi’s survival chances, reiterating that the country needed to maintain its three-private player market structure.
The Bharti Airtel chairman said the telecom sector has perhaps “seen the worst in terms of tariff wars and ARPU (average revenue per user) contractions,” adding that industry ARPUs would definitely rise to Rs 200 by the end of FY22. He said Airtel had already taken the lead in raising entry-level prepaid tariffs to Rs 79, a move “that had been well received in the market.”
It would make sense to raise this further to Rs 99. “The question is when, as we are also bound by market forces and cannot be an outlier beyond a point where you start to hurt yourself,” Mittal said.
The Bharti Airtel chairman clarified that the upcoming rights issue proceeds won’t be used to raise the telco’s stake in Indus.