Bharti Airtel is likely to offload around 5% stake in its tower unit Bharti Infratel shortly and use the proceeds to cut back debt at a time India's No 1 telecom company is preparing for another spectrum auction.
At current market capitalization of Rs 73,306.18 crore for Bharti Infratel, a 5% stake sale could help Bharti Airtel raise close to Rs 3,700 crore. Shares in India's only listed telecom tower company ended Wednesday at Rs 386.50, down 2.5%, while Bharti Airtel closed 0.6% lower at Rs 356.50 on the Bombay Stock Exchange, underperforming a flat market.
"Most likely it will be via a block trade in the open market," a person familiar with the matter said. Bharti Airtel holds around 71.7% in Infratel but has been reducing its stake periodically in the company, which was listed in 2012. Infratel ended the October-December 2015 quarter with 88,055 towers.
Another person said that Sunil Mittal-owned Bharti Airtel has appointed UBS to manage the sale process, who is checking for foreign and local investor interest for the stake. "The stake sale is likely to happen at a discount to market price. Usually, the discount is around 5%," the second person added.
Both Bharti and UBS declined to comment on the development. This isn't the first time Airtel has cut its stake in the tower business.
In August 2014, Airtel had raised close to Rs 2,140 crore by selling a 4.5% stake in Infratel, in order to comply with a regulation on minimum public holding and generate funds as the securities law requires a listed company to have a minimum of 25% public shareholding. A year later, it raised Rs 1,925 crore by selling 55 million shares in Infratel, further reducing its stake.
"The move was expected since the company will soon face spectrum auctions and it needs room for leverage to buy airwaves," said an industry expert who didn't wish to be named.
Airtel's consolidated net debt at the end of December 2015 increased to $11.91billion (Rs 81,000 crore) from $10.77 billion in the quarter ended September. It has recently also spent to beef up its 4G spectrum, buying Videocon's in six circles for Rs 4,428 crore, and Aircel's in eight circles for Rs 3,500 crore.
While the net debt to EBITDA ratio for the October-December quarter stood at 2.34, that could increase to 3.1 post the two buys, as per Moody's.
The stake sale comes when the telecom department is in the midst of preparing for a mega auction of bandwidth across 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2300 MHz and 2500 MHz bands in July.
Analysts though say Bharti Airtel, due to its recent spectrum buys, has adequate data bandwidth and is in a position to just pick and choose its targets in the sale.
Since its IPO price of Rs 220 in December 2012, Bharti Infratel's stock plunged to an all-time low of Rs 148 in June 2013, mirroring the troubles in the telecom industry, and consequently the tower companies.
But an upswing in the fortunes of the sector amid network expansion and a relatively clearer regulatory environment, meant a turnaround in the fortunes of the tower sector as well, including the financials of Bharti Infratel.
Amid choppy markets, the company's stock has risen over 4% in the last year, hitting a high of Rs 505. It reported a 12% rise in its net profits to Rs 565 crore for the October-December quarter, as mobile carriers invested aggressively in 3G and 4G network expansion and rollouts amid surging data consumption.
According to Moody's, contracts from Reliance Jio Infocomm coupled with data-network expansion by incumbent mobile operators have led to an increase in tenancy ratios for the Indian tower companies, giving a fillip to Infratel's business.