Bharti AirtelBSE 0.56 % may revive a plan to sell a controlling stake in tower arm Bharti Infratel in an effort to pare over $14 billion of debt and release funds for network expansion, people familiar with the matter said.
The possible change of plan may have been sparked by an over-26% surge in Infratel’s stock price over the past three months. The stake sale in India’s second-largest telecom tower company is key to strengthening Airtel’s balance sheet in the midst of a price war that’s eroded profit.
“What AirtelBSE 0.56 % needs to do is focus on keeping the balance sheet very strong, because for the next one year, it doesn’t have control over its profit and loss account… It has got to keep the balance sheet strong, even stronger than it is,” one of the people said.
Consolidation moves in Africa, where Airtel has operations, would also be considered.
Infratel shares have risen 26%
The telecom price war is expected to continue for another year and the industry will be in for a tough time, the person said, referring to the ongoing competition that has hurt revenue and profitability. Airtel, the market leader, reported a 72% fall in net profit in the January-March quarter to Rs 373 crore, its smallest in four years.
The company’s net debt stood at $14.1 billion at the end of March, a quarter in which net finance costs rose 13%. Operating free cash flow has been under pressure amid a squeeze on revenue as voice and data rates fell sharply.
Airtel could look at several options, including sale of controlling stake or partial stake, the person said. Bharti Airtel declined to comment on the matter.
Airtel had talked about selling a controlling stake in Infratel in October but shelved the plan in March. Instead, it transferred a 21.63% holding to a wholly owned arm, Nettle Infrastructure Investments, as share price declined amid industry consolidation that threatened tenancies and revenue.
Of the stake held by Nettle, 10.3% was sold to a consortium of KKR and Canada Pension Plan Investment Board for $952 million, or `325 a share, in March. Airtel directly holds 50.33% of Bharti Infratel. The remainder 28.05% is with the public and other shareholders.
Since the sale to KKR and CPPIB, Bharti Infratel shares have climbed over 26% on the BSE on expectations that a healthier telecom industry following consolidation will invest in expanding networks, benefitting tower companies.
Infratel shares rose 0.3% to Rs 402.30 at the close on Wednesday, giving the company a market capitalisation of Rs 74,409.74 crore. At this price, a 51% stake sale can fetch Airtel about Rs 38,000 crore.
While the rise in Infratel stock may have triggered a change in Airtel’s plan, the higher price may also act as a deterrent to buyers, one person said.
The KKR-CPPIB consortium was widely expected to buy the remaining stake held by Nettle at Rs 350-360 per share.
“Since the current market price of Rs 400 is much above that, both sides are trying to find a middle ground, which is a win-win for both parties and for the public shareholders,” the person said.
KKR declined comment while CPPIB didn’t respond to emailed queries on the matter.
Airtel plans capital expenditure of $2.5 billion in the current financial year in India, where it is expanding 4G network and deepening 3G network. Airtel spent about $2.3 billion in the previous year.
Bharti Infratel had 90,646 towers at March-end, including its share in Indus Towers by virtue of 42% stake.
Source: Economic Times