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Bharti Airtel, which yesterday reported a 49 per cent fall in fourth quarter profit, has sold a five per cent stake to Qatar Foundation Endowment (QFE) for $1.26 billion (Rs 6,796 crore).
According to the agreement, Bharti Airtel will issue 199.9 million new shares at Rs 340 each, a 7.3 per cent premium to the stock’s closing price on Thursday, Bharti Airtel said. The deal values the company at Rs 1,35,920 crore. Bharti Airtel’s stock went up four per cent in intra-day trade on friday but closed with a gain of 0.32 per cent at Rs 317.7.
Analysts were not enthused by the premium. “Investment at Rs 340 a share is just okay. If an institution is taking a five per cent stake, I was expecting a much higher premium,” said Daryl Philip, senior telecom analyst at Finquest. Jagannadham Thunuguntla, chief strategist at SMC Global Securities, said, “A Rs 10-20 premium is okay for a fairly long-term investment. The valuations are sluggish, so it is a good opportunity for QFE to enter.”
The move to deleverage is positive, said UBS, as it improves balance sheet strength. The net debt-to-Ebitda ratio would be reduced to 2.29:1 from 2.57:1. “The deal is 7.4 per cent above the closing price on May 2, highlighting that strategic investors such as QFE see long-term value in the stock. It provides headroom for Bharti to make regulatory payments,” said Suresh A Mahadevan and Varun Ahuja, UBS analysts, in the report. The research firm cut Airtel’s earnings per share estimate, as it would be diluted by one to two per cent. UBS cut the price target from Rs 425 to Rs 420.
Airtel has debt of around Rs 65,000 crore. The company claimed the investment would strengthen its capital structure and give it flexibility to deliver on its growth strategy. Airtel had yesterday said it would spend $2.2-2.3 billion (Rs 11,858-12,397 crore) in capital expenditure for the full year. Of this, capex in Africa is expected to be $600 million (Rs 3,234 crore).
Analysts, however, said the Indian telecom story was not yet bright for foreign investors. “Bharti is a class act. It is the industry leader, in terms of market share and even pedigree of management. This may be a select opportunity, and I don’t think telecom is in the market’s interest,” said Thunuguntla.
Bharti Airtel might have more stake sales this year. The company will have to sell shares in its tower arm, Bharti Infratel, to meet the minimum public shareholding norm of the Securities and Exchange Board of India. Bharti Infratel made its stock market debut last year.
Bharti raised around $1.5 billion via issue of dollar bonds through its Netherlands-based subsidiary. It is raising around $500 million through a second tranche of bonds, and has received bids worth four times the value on offer.
Advantages
* Improves Bharti’s balance sheet strength
* Reduces FY13 net debt to Ebitda to 2.29x from 2.57x
* Deal is 7.4% above yesterday's closing price
* Gives headroom to Bharti to make regulatory payments
Flip side
* EPS diluted 1-2% as share base increases
