Airtel sells 10.3% stake in Bharti Infratel to KKR, CPPIB for Rs 6,194 cr

Stake sale likely to help reduce telco's Rs 97,395-crore debt

Leading telecom operator Bharti Airtel has offloaded a 10.3 per cent stake in its tower infrastructure arm Bharti Infratel for Rs 6,193.9 crore to a consortium of global private equity firms KKR and Canada Pension Plan Investment Board (CPPIB). The move is expected to help reduce the telco’s nearly Rs 1-lakh crore debt, besides strengthening its cash reserves to invest in infrastructure amid market consolidation.

With this, KKR has returned as an investor in Bharti Infratel. It had earlier invested in Bharti Infratel in 2007 but subsequently divested in public markets in three tranches between December 2012 and June 2015, making returns of around 1.5 times.

The Sunil Bharti-led company on Tuesday announced completing secondary sale of over 190 million shares of its subsidiary Bharti Infratel, executed at a price of Rs 325 per share. The company said the proceeds from the sale would enable it to cut its debt of Rs 97,395 crore as on December 31, 2016.

While the company has opted not to offload a controlling stake in Bharti Infratel at this point, analysts believe it could be looking at further sale at a better valuation. The Bharti Infratel stock, which ended two per cent higher in trade on Tuesday, was down 18 per cent since the start of the year. Bharti Airtel was up 0.6 per cent to Rs 340.65 on the BSE.

Following the closure of this transaction, Bharti Airtel’s equity holding in Bharti Infratel stands at 61.7 per cent and that of KKR and CPPIB at 10.3 per cent. 

According to sources, the company may soon sell the remaining 11.33 per cent holding in Bharti Infratel, for which the talks are on with multiple companies.

After Bharti Airtel had shelved its plans to sell a majority stake in Bharti Infratel, it had recently announced that it might sell a minority stake of 21.63 per cent to investors, including its own subsidiary Nettle Infrastructure.

According to an analyst, “Deleveraging stake in Bharti Infratel to cut debt was needed, as the company now needs renewed focus on its core business and would be required to make investments in upgrading infrastructure.”

Commenting on the deal, Parag Gupta and Amruta Pabalkar of Morgan Stanley said that the stake sale would give Airtel the flexibility to step up capital expenditure (capex) for the Indian wireless business to expand its data network coverage and capacity to counter Reliance Jio. 

But, independent analyst Mahesh Uppal pointed out that the tower business was looking much less attractive in the wake of ongoing consolidation leading to lower tenancies. Mobile companies can now negotiate much better rates for use of towers, he said.

“This investment by a consortium of marquee long-term investors underlines the confidence of the global investors in India’s growth story and the government’s Digital India initiative in particular. The long-term investment horizon of the investors aligns well with the capital needs and business cycles of Bharti Infratel,” Sunil Mittal, chairman, Bharti Airtel, said.

For the nine months ended December, Bharti has spent about Rs 16,000 crore ($2.38 billion). The company’s India capex is expected to be about $2.1 billion and a large part of it would cater to broadband roll-out and strengthening of 4G network. In fact, to improve its spectrum holding and reach, the company had recently purchased Tikona Digital Networks’ 4G business for Rs 1,600 crore.  

“As long-term partners of Bharti Infratel, we have intimately seen the company strengthen its position as a world-class telecom infrastructure provider,” said Sanjay Nayar, member and chief executive officer of KKR India. He added that KKR India now had a unique opportunity to partner with the company for a second time.

According to telecom experts, the tower space would witness a churn, following consolidation in the sector, including the announcement of Idea-Vodafone merger. Among the tower deals, in December, Reliance Communications had sold a majority stake in its tower business to Brookfield for $1.6 billion, while NYSE-listed American Tower Corporation had bought a 51 per cent stake in telecom tower firm Viom Networks for Rs 7,635 crore ($1.2 billion) in an all-cash deal in 2015.