Singtel's play in Bharti a confidence vote;telecom at a trough

Singtel's Rs 2,649 crore infusion in Bharti Airtel is a confidence vote in the country's largest telco, and also signifies that the battered telecom sector may have hit the bottom, global ratings agency Fitch said today.

Singtel's decision reflects "its desire to capitalise on the long-term growth potential of India's telecoms market", the global agency said.

The announcement made yesterday also underscores that the industry may have reached a trough and the pressures on incumbent operators who were impacted by new entrant Reliance Jio's aggressive play, should ease this year, it said.

The agency said it expects a "gradual price discipline" in the telecom sector to drive a mid-single-digit revenue recovery in 2018, which was one of the major reasons for it to revise up the sector outlook to "stable" from "negative" in 2017.
 

One more aspect driving its outlook is strengthening of the consolidation process in the industry which is now left with only three players, Airtel, Reliance Jio and the combined entity which will be created through the merger of Idea and Vodafone, it said.

Singapore Telecommunications (Singtel) yesterday announced that it will invest Rs 2,649 crore in Bharti Telecom to raise its stake in the holding company of Bharti Airtel to 48.9 per cent, just a tad lower than billionaire Sunil Mittal-led promoter group's holding.

Singtel will raise its stake in Bharti Telecom, the promoter of BSE-lised Bharti Airtel, through subscription to preference shares.

Billionaire Sunil Bharti Mittal-led Bharti Enterprise holds over 50 per cent stake in Bharti Telecom.

In the statement, Bharti Airtel said that the funds will be used towards debt reduction.

In the note, the agency said despite the additional investment, the incremental cash contribution to Singtel from Bharti is unlikely to be significant as it remains only an associate company for the Singaporean telco.

Also, the large capex needs and intense competition mean that Bharti contributes little dividend to Singtel, which derives 74 per cent of its funds from operations from Singapore and Australia-based Singtel Optus.