Bharti Airtel to raise $1 bn; subsidiary to issue bonds

Bharti Airtel has initiated a massive fund raising exercise, estimated at up to $1 billion (about Rs 7,000 crore), via a bond issue by its subsidiary Network i2i, the proceeds of which will be used to cut debt for the telco that is engaged in a turf war in the Indian telecom market.

The mega fund raiser comes just months after the Sunil Mittal led company raised Rs 25,000 crore through a rights issue.

The telecom sector has been battered by falling tariffs, eroding profitability, and mounting debt, in the face of stiff competition triggered by disruptive offerings of Reliance Jio, owned by Mukesh Ambani.

But with the market for voice and data growing at an explosive pace and intensifying competition, telecom operators have been investing in strengthening networks, and preparing war chests to protect their turfs.

In a regulatory filing on Tuesday, Bharti Airtel announced that an "...offering of USD denominated Guaranteed Subordinated Perpetual Securities by Network i2i Limited (a direct 100 per cent subsidiary of Bharti Airtel) expected to be rated 'BB' by both S&P and Fitch may follow, subject to market conditions."

Bharti Airtel has appointed a clutch of bankers including BofA Merrill Lynch, Barclays, BNP Paribas, Citigroup, HSBC, J P Morgan and Standard Chartered Bank as joint bookrunners and joint lead managers to organise a series of fixed income investor meetings and calls across Asia, Europe and the US starting Wednesday, it added.

Simply put, a perpetual bond is a fixed income security with no maturity date, that yields a steady flow of interest payments.

Airtel at the time of its rights issue earlier this year, had mentioned it would also raise additional Rs 7,000 crore through a foreign currency perpetual bond issue.

Sources said that the ensuing fundraising is likely to be in range of USD 750 million to USD 1 billion, and the final figure will be arrived at, based on market response.

The proceeds from the issue will be utilised for pruning debt of Bharti Airtel, which as on June 2019 stood at a staggering Rs 1.16 lakh crore.

Meanwhile, S&P Global Ratings has said it expects Bharti Airtel's leverage to remain elevated over the next six to nine months, but improve gradually due to reduced capital spending and increasing stability in its India mobile operations.

"We assess Network i2i Ltd's proposed USD 1 billion subordinated perpetual securities (PERPS) as having intermediate equity content. The PERPS are guaranteed by Bharti. We estimate the issuance will improve the India-based telecom operator's FFO-to-debt ratio (funds from operations to debt ratio) by about 50 basis points," S&P Global Ratings said in a statement.

The move comes at a time the incumbent operators are facing acute financial stress and are also experiencing subscriber churn.

On the last count by sector regulator, Reliance Jio added 85.39 lakh mobile users in July, while arch rivals Bharti Airtel and Vodafone Idea lost a cumulative 60 lakh users during the month.

The mobile subscriber base of Reliance Jio stood at 33.97 crore, as the company added 85.39 lakh users during July. In contrast, the two older operators Airtel and Vodafone Idea continued to experience subscriber churn.

Bharti Airtel (including Tata Teleservices numbers) lost 25.8 lakh mobile users during the month, bringing down its subscriber base to 32.85 crore.

Vodafone Idea, on the other hand, lost 33.9 lakh customers as its base fell to 38 crore users.

Bharti Airtel had posted a Rs 2,866 crore loss for the June quarter, its first consolidated loss in 14 years, as the telco lost ground to rival Reliance Jio and took a hit from exceptional items such as charges towards accelerated depreciation of 3G network gear.

Airtel had logged a net profit of Rs 97 crore in the June quarter of the previous fiscal.

The revenue of the company rose 4.7 per cent to Rs 20,738 crore during the first quarter ended June 2019.