Bharti Telecom, a key promoter company of Bharti Airtel, will need to raise debt to fund the purchase of a 3.33% stake in the Indian telecom operator for $1.61 billion (about Rs 12,900 crore) from Singtel, IIFL Securities said.
This is since Singtel has ruled out any fresh equity infusion in Bharti Telecom, the brokerage said.
The Mittals of Bharti Enterprises and Singtel own 50.56% and 49.44%, respectively, in Bharti Telecom.
IIFL also does not expect Singtel to sell any further stake in Bharti Airtel beyond the equalisation of shareholdings targeted by the southeast Asian telecoms carrier and Bharti Enterprises in India’s second largest carrier.
“In the conference hosted by Singtel (after the deal announcement), it ruled out any equity infusion in BTL (Bharti Telecom), and thus BTL has to raise debt to fund this ($1.61 billion) transaction,” IIFL Securities said in a note to clients.
It, though, said future dividend pay-outs from Airtel should keep BTL’s debt/leverage under check.
The views came a day after Singtel said it would sell a 3.33% stake in Bharti Airtel in the next three months, as it looks to boost shareholder returns.
BTL has not yet elaborated on how it plans to fund the stake buy.
Analysts said BTL’s near Rs 12,900 crore fund requirement was less than 10% of the value of its stake in Airtel. At present, BTL owns 35.4% of Airtel, which values its stake at almost Rs 1.44 lakh crore based on the telco’s market capitalisation of over Rs 4.06 lakh crore on Friday.
IIFL estimates that post-conclusion of the Singtel deal, BTL’s debt would rise to Rs 15,500 crore and its participation in future calls for Airtel’s rights issue (by late 2024) would entail another Rs 6,000 crore.
While Singtel’s management said BTL’s debt even after the 3.33% stake acquisition would remain at manageable levels, some analysts remain sceptical.
“In the absence of BTL’s own cash inflows (as Airtel does not yet pay dividends), the ability of BTL to service the debt remains a question,” said UBS in a note to clients.
Airtel shares closed 1.02% lower at Rs 730.55 on the BSE Friday.
IIFL expects the Singtel-BTL deal to happen off-market as the Southeast Asian telecom carrier’s selling entities are domiciled in Mauritius — so, there won’t be any capital gains tax implications.
On completion of the stake sale, BTL will own 38.75% in Airtel, up from the current 35.4%. Singtel’s effective holding in Airtel will drop to 29.7% from 31.4% while the Mittal family’s effective stake in the telco will rise to 25.6% from 23.9%.
