Can A Flood Of Funds Turn The Tide For Telecom Operators?

Why just raising funds is not enough for India’s telecom operators...

A runner jogs along the water’s edge at sunrise. (Photographer: Brendon Thorne/Bloomberg)
A runner jogs along the water’s edge at sunrise. (Photographer: Brendon Thorne/Bloomberg)

India’s telecom operators plan to raise cash and sell assets to pare debt as the tariff war unleashed by Asia’s richest man continues unabated. But that’s unlikely to help their core business unless they increase prices.

The planned deleveraging will only allow the operators to lower debt but won’t improve operational performance. The operating income of India’s top two operators has fallen by half in the last two years. And growth has also slowed for the Mukesh Ambani-controlled disruptor, Reliance Jio Infocomm Ltd. The only way to stem that is higher tariffs.

In fact, Vodafone Idea Ltd., after announcing the third-quarter earnings, had flagged worries about the cash that operators were burning by providing services below cost.

Rajiv Sharma, co-head of institutional research equities at SBICAP Securities, however, said tariffs have bottomed out and a hike is certain, but only the timing is uncertain. Any increase will help the companies improve earnings before interest, tax, depreciation and amortisation.

That’s easier said than done though since Reliance Jio shows no intention of giving up its target to acquire 50 percent market share—it has 24 percent of the industry users and 30 percent of the revenue. And it has the pricing power in the in-demand 4G services that has hooked Indians to watching videos and listening to music online.

To reach half the market share, Reliance Jio’s aggression has to continue as it has not reached its target, said Sanjay Kapoor, telecom expert. “It’s difficult to believe that Jio will call it a truce by increasing rentals.”

The companies for now are relying on raising cash and selling assets to repair balance sheets.

Deleveraging Plans

Vodafone Idea

Vodafone Idea is not only raising Rs 25,000 crore through a rights issue but India’s largest telecom operator has also put its stake in Indus Towers Ltd. and its fiber assets up for sale. The company’s stake in Indus Towers could be valued at close to Rs 5,000 crore, according to BloombergQuint’s calculations.

The company plans to monetise 1,58,000 kilometres of intra- and inter-city fibre assets. While the valuation is not known, but the company pegs replacement cost at Rs 10 lakh per kilometre. Using that as a benchmark, the fibre assets could be worth about Rs 15,800 crore.

Bharti Airtel

Sunil Mittal-controlled Bharti Airtel Ltd. also plans to raise Rs 32,000 crore—Rs 25,000 crore through a rights issue and the rest by issuing perpetual bonds.

The wireless carrier is also looking at an initial public offering for its Africa business. In 2018, it raised close to Rs 9,200 crore by selling nearly a third of its stake in the profitable unit, valued at about Rs 32,400 crore. As of now, Bharti Airtel’s 65 percent stake in the business is valued at close to Rs 21,000 crore.

The company can also potentially raise another Rs 65,000 crore by selling non-core assets.

  • It holds 80 percent stake in the DTH business which is valued at close to Rs 9,000 crore.
  • The company’s 53.5 percent stake in its tower arm Bharti Infratel Ltd. is valued at close to Rs 27,000 crore.
  • Bharti Airtel also owns pan-India optical fibre network of 2,73,600 kilometres—based on replacement costs it could be worth Rs 27,360 crore.

Reliance Jio

Mukesh Ambani-controlled Reliance Jio Infocomm Ltd. has already hived off its tower and fibre assets, moving Rs 70,700-crore debt off the operator’s books to an investment trust. The company is valued at close to Rs 2,03,300 crore, according to Reliance Industries Ltd. Any stake sale would result in cash flows for the parent.

Vodafone Idea’s Rs 25,000 Crore Rights Issue Gets Oversubscribed