Bharti Airtel's equity issuance to aid deleveraging, fund 5G capex: Fitch

Bharti Airtel Ltd' planned $ 2.8 billion equity issuance will improve its net leverage to around 2.0x (end-March 2021: 2.1x) and provide funds to strengthen its market position, according to Fitch Ratings.

Bharti will raise equity in three tranches, a quarter of the proceeds to be received upfront and the balance in two instalments within three years.

Bharti's management remains committed to an investment-grade rating. The company raised about $9 billion in FY20 and FY21 via equity issuance, selling a stake in subsidiary Airtel Africa Plc and the sale-and-leaseback of towers in Africa. The comoany management aspires to achieve a debt/EBITDA ratio of around 2.0x in the long term, Fitch said. Bharati carries a rating of “BBB-/Negative”.

Fitch has forecast that Bharti's capex will increase to about $5 billion in FY22 (FY21: $4.6 billion), of which $1.5 billion is likely to be paid upfront to acquire 5G spectrum assets.

The company will seek to strengthen its fibre infrastructure - connecting towers with fibre and backhaul infrastructure to prepare its network to launch 5G services in 2022-2023. The capex on 5G infrastructure during 2022-2023 will replace 4G investments, as 4G coverage is largely complete, the rating agency added.

Bharti's revenue and EBITDA grew by 15 per cent and 30 per cent, respectively, year-on-year in Q1FY22. The industry's monthly average revenue per user (ARPU) is expected to rise by 15-20 per cent to Rs 175 ($2.4) in the next 12 months (Q1FY22: Rs 146). This rise in ARPU is driven by headline tariff increases and increasing migration of 2G users to higher-priced 4G plans.

Bharti increased the minimum amount that a prepaid user must pay to keep a number active to Rs 79 ($1) from Rs 49. Management believes that industry-blended ARPU needs to increase to around Rs 200 in the next 12 months and to Rs 300 in the medium term.