Bharti Airtel: Shedding tower assets, more in store

Tower deals a positive; stock could be re-rated if the firm leaves some smaller African markets

The Bharti Airtel stock was up two per cent after the company announced it had completed the sale of telecom towers in five African countries for a consideration of about $1.3 billion. The company has said it will use the proceeds to reduce its net debt, currently stands at $11 billion. Including the deferred payments, the total debt is pegged at $15 billion or Rs 90,000 crore by analysts. At the current net debt level, the sale should bring down debt by about 12 per cent and help save interest costs. Interest costs increased to Rs 5,013 crore in FY15, from Rs 3,660 crore in FY14

While Bharti has completed the agreement in five countries, it expects to complete the sale of tower assets in another six countries over the next six-seven months, as agreements for another two countries have lapsed. Analysts had estimated the entire 18,000 tower portfolio will fetch $3-$3.5 billion (Rs 18,000-21,000 crore). This is being revised to about $3 billion, excluding the two countries where agreements had lapsed.



While debt is reduced, expect network operating costs to go up, with analysts estimating this number to go up from 22 per cent of African revenues to about 26 per cent. IIFL had earlier calculated the tower deals will be cash flow-accretive to the tune of $100 million annually, given $320 million of annual tower capex savings, though this will be offset by higher rental expenses.

What will drive up the stock as far as Africa is concerned is reports that the company is planning to sell four of its 17 Africa businesses, which include Congo, Chad and Gabon. These account for 14 per cent of African revenues and four per cent of consolidated revenues. Analysts at Nomura say this is a good and necessary move for the company as various African assets have become difficult to manage with Ebidta margins coming down from a peak of 27 per cent to 23 per cent now.

On the India business which accounts for 70 per cent of the company’s revenues and all its profits the Street will be eyeing the disruptive nature of RJio’s roll-out and the market share the company can retain. Bharti, however, is gearing up by way of improving its 3G/4G network, which along with lower debt will strengthen its leadership position.