On Monday Airtel shares were trading roughly 1% higher at Rs 599.90 on BSE.
Bharti Airtel shares rose 2.6% in early trade, a day after India’s second-largest telco announced plans to raise up to Rs 21,000 crore by selling shares to existing investors via a rights issue, a move that analysts say gives the Sunil Mittal-led telco “a good buffer to make accelerated investments” in a scenario where India transitions to a two-player telecom market faster than expected.
Brokerage UBS said a stronger balance sheet “would position Airtel well to benefit from a potential Vodafone Idea (Vi) bankruptcy, which could lead to an influx of over 100 million customers and create the need for additional spectrum and CAPEX”.
Airtel’s current fundraising ambitions are part of the country’s second-largest telco’s efforts to build a war chest in order to pay off statutory debts, expand and deepen its 4G network, and prepare for a 5G airwave auction in early 2022, as well as to roll out the next-generation technology in India.
According to Credit Suisse, Airtel’s promoters’ commitment is favourable for the company’s shares. “The issue necessitates contributions of $0.9 billion and $0.7 billion from Singtel and the Mittals, respectively,” it stated.
Analysts, on the other hand, said that while Airtel’s rights offering and promoter participation alleviates concerns about capital raising, it serves as a reminder that FCF (free cash flow) generation in the standalone business is inadequate and requires rate hikes and market share gains to improve.
On Monday morning, Airtel’s stock was trading 1.85% higher at Rs 604.95 on the BSE.
Airtel shareholders would receive one new share for every 14 shares held at Rs 535 apiece under the rights offer, the Sunil Mittal-led telco said in a notice to stock exchanges on Sunday.
Subscribers to the rights issue must pay 25% on application and the remainder in two additional calls, as determined by the board based on the firm’s needs, but no later than 36 months, according to the company.
CLSA said, “Airtel rights issue and call options create headroom, keeping gearing comfortable, especially in the event that the government prepones the 5G spectrum auction”.
The money raised, according to Edelweiss Research, “provides Bharti with the required weaponry in case of an aggressive 5G rollout.”
In a regulatory filing on Sunday, Airtel said its board had thoroughly assessed the industry context, business climate, financial/business strategy, and approved the company’s proposal to raise additional capital.
According to the statement, Airtel’s promoter and promoter group would jointly subscribe to the entire amount of their aggregate rights entitlement, or in proportion to their stake. They’ll also buy any shares in the issue that aren’t fully subscribed.
Nearly 56% of the telco is owned by the promoter group, which includes the Mittal family and Singapore’s SingTel. The Mittal family controls 24.13% of the company directly and indirectly, while SingTel owns 31.72%. The rest is in the hands of the general populace.
According to Edelweiss, Airtel’s rights offering is priced at a 9% discount to its CMP (closing market price) and will result in a 7% equity dilution. “We believe the 7% dilution over three years with 55% of capital coming from the promoter will be viewed positively by investors.”
