As competition mounts, Singapore Telecommunications Ltd (Singtel) will buy roughly $525 million worth Bharti Airtel stock as part of its Indian telecom partner's plan to raise $4.6 billion through shares and bonds.
Sunil Mittal's Airtel, fighting a low tariff war unleashed by rival telecom firm of Billionaire Mukesh Ambani's Reliance Jio, hopes to use the money to cut debt and strengthen its balance sheet at a time when the Indian telecom industry is trying to come to terms with a price war triggered by the entry of Reliance Jio Infocomm Ltd.
Under the fundraising plan, announced last month by the Sunil Mittal company, Airtel plans to sell new shares worth Rs 25,000 crore ($3.6 billion) for Rs 220 apiece, or a nearly 30 per cent discount to its current stock price. It will raise another Rs 7,000 crore via foreign-currency denominated bonds.
"With balance sheet strength being a concern among incumbents especially at a time when continued investments in 4G are paramount, this move should be a positive," Citi analyst Saurabh Handa had said in a note on Airtel's rights issue.
Airtel's net debt stood at more than $15 billion or about Rs 1 lakh crore as of December 31, 2018, while its current market value is around $17.5 billion. Singtel had a net debt $9.75 billion ($7 billion) at the time.
Singtel will buy 170 million new shares in Airtel, India's No.2 telco in terms of subscribers. This will dilute its effective interest in Airtel to 35.2 per cent from 39.5 per cent.
Singapore's largest telecom operator has often said it holds a long-term view of its investment in Airtel, which it reiterated again on Thursday. It owns just under 50% of Airtel's holding company Bharti Telecom.
"Our participation in this rights offering ... reflects our long-standing commitment to Airtel and the confidence in the future of the Indian market," Arthur Lang, CEO of Singtel's International Group, said on Thursday.
Last month, Singtel reported a 14 per cent drop in third-quarter net profit, as Airtel's earnings fell by three quarters in the December quarter.
There is huge pricing pressure in the Indian telecom market and after the consolidation, there are now 4 operators.
Reliance Jio backed by Parent Reliance Industries has been burning cash aggressively to gain market share.
After facing a huge drop in profits due to Jio, Airtel, however, is pushing for offshore growth amid the price war and lacklustre performance at home.
Last month, Airtel 's Africa unit, Airtel Networks Kenya Ltd, agreed to merge with Telkom Kenya Ltd, the East African nation's smallest telecom operator, to create a stronger challenger to market leader Safaricom.
Airtel's two other major shareholders - Bharti Group and Bharti Telecom - will subscribe to their full entitlement in the rights issue, while Singapore's state-backed GIC will commit about Rs 5000 crore, Airtel and Singtel said.