Are Minority Investors Getting A Fair Value For Stake In Bharti Telecom? 

Bharti Telecom Ltd., promoter of India's largest telecom operator Bharti Airtel Ltd., is offering an exit route to its 4,942 public shareholders who own 1.1 percent stake in the company.

The holding company, jointly promoted by the Bharti Group and Singapore-based SingTel Group, was delisted from exchanges in India in March 2000. It first provided an exit to minority investors in June 2002.

This time, it has chosen the capital reduction method. The company will cancel the shares of minority shareholders by paying Rs 196.8 apeice. And shareholders will get the payout in the form of a dividend. What that means is Bharti Telecom will deduct the dividend distribution tax and pay a net Rs 163.25 a share, according to a notice to shareholders.

Is The Value Right?

The price now offered by Bharti Telecom to minority shareholders is nearly double of what it paid 16 years ago, but about half the price at which SingTel invested five months back.

The Singapore-based company on Feb. 5 subscribed to new shares issued by Bharti Telecom at Rs 310 apiece, according to company filings. The value then was based on Jan. 18 valuation report. Bharti Telecom had raised funds primarily to pay its debt.

Bharti Telecom generates most of its revenue from the dividend it receives from Bharti Airtel. Being a holding company, its value is generally at a discount to that of Bharti Airtel's share price.

Tax Dampener

Rajeev Kasat, one of the minority shareholders of Bharti Telecom, said the value derived by the company is fair because generally an unlisted holding company trades at a discount to the intrinsic value of the listed company.

“But as they are giving this money as a dividend, I am losing out on the tax,” he said. “I believe if they don't deduct DDT, then it would be an appropriate price.”

A Bharti Group spokesperson said in an emailed response that the price has been arrived at after taking into consideration the market value of Bharti Airtel's stake and adjusting for borrowings.

The capital reduction method was seen as the right route, according to the spokesperson. The process was initiated on requests from minority shareholders to provide them an exit, the company said. The holding company of Bharti Airtel has added another condition keeping the interests of minority shareholders in mind. It will clear the resolution only if the majority of the minority shareholders approve it.

Usually, 75 percent of shareholder votes are needed in favour to pass a special resolution. Which in this case wouldn't have been difficult since promoter entities own nearly 99 percent of the company.