Bharti Airtel To Raise $1.25 Billion By Diluting Stake In African Unit

Fund raising to reduce consolidated net debt of Airtel by less than 10%.

A man rides a bicycle past an advertisement for Airtel Ghana Ltd. in Accra, Ghana. (Photographer: Ty Wright/Bloomberg)
A man rides a bicycle past an advertisement for Airtel Ghana Ltd. in Accra, Ghana. (Photographer: Ty Wright/Bloomberg)

Bharti Airtel Ltd. will raise close to $1.25 billion by selling stake in its profitable African business.

Warburg Pincus, Temasek, Singtel, SoftBank Group International, and two others have agreed to invest in the African unit by subscribing to new shares, the company said in a statement released on the exchanges today.

Bharti Airtel said it will use the proceeds to repay debt and for the growth of its African operations. The telecom operator had earlier said it is working on a plan for an initial public offering of its Africa unit in the next one year, to help reduce its debt.

Bharti Airtel would dilute nearly one-third of its stake. After the transaction, it is expected to own close to 65 percent stake in the African business, while the rest will be held by the new investors and minority shareholders.

After the transaction the entire equity value of the African unit will be close to $4.4 billion, the company said. The deal is valued at close to 7.5 times its last 12-month Ebitda, according to BloombergQuint’s calculation, which is in line with other listed peers.

The enterprise value of listed peers of Bharti Airtel in Africa—Maroc Telecom, MTN Group, Vodacom Group, and Safaricom—is at four to eight times their 2018-19 earnings before interest, tax, depreciation, and amortisation, according to Bloomberg.

How Has Africa Performed?

Bharti Airtel continues to gain footing in Africa even as its India business is under pressure.

Revenue generated from the Africa business is little more than Rs 20,000 crore for the 12 months ended June. Growth in net profit came on the back of the company’s cost-saving initiatives, which also reflected on the margins. Bharti Airtel’s profit margin from Africa stood at 36.4 percent in the June quarter.

The Africa unit has more than 9.1 crore subscribers and an average revenue per user of close to Rs 197.

Why This Deal?

India’s second largest telecom operator is locked in a tariff war triggered by Billionaire Mukesh Ambani-owned Reliance Jio Infocomm Ltd, hurting its profitability and revenue. That pushed up its debt and leverage. The company has a consolidated net debt of Rs 1,02,903 crore as of June 2018 and its leverage has risen for five straight quarters amid a bruising tariff war led by telecom upstart Reliance Jio.

It spent a little more than Rs 8,200 crore on capital expenditure in the quarter ended June and plans to spend another Rs 19,000 crore over the financial year ending March 2019. This will be Bharti Airtel’s third attempt to pare stake in operations other than India wireless business. Earlier, the Sunil Mittal-owned company sold stake in its tower arm Bharti Infratel Ltd. and in its DTH business.

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