Bharti Airtel set to gain from 100% FDI; stock hits 11-year high

The Union government’s permission to allow 100 per cent foreign holding in Bharti Airtel could lead to multiple gains for the company. In addition to boosting its financial position, a change in promoter holding in favour of co-promoter Singapore Telecommunications (Singtel) is also seen in a positive light by investors. The stock, which has gained 84 per cent over the last year, hit an 11-year high in trade on Wednesday, following the lifting of holding caps.

Analysts at Bloomberg say Singtel may seek majority stake in Bharti Airtel after its India subsidiary received government approval to be 100 per cent foreign owned, and that it will first commit at least $700 million (about Rs 5,000 crore) to strengthen its hold on Airtel. 

Singtel’s stake in Airtel slipped below the 35-per cent mark after the recent $2-billion equity fundraise. Increasing its stake in Bharti Airtel will help Singtel make up for the sluggish domestic profit at its Singapore operations and benefit from the earnings turnaround at the Indian unit, they add. 

Given the improving prospects and the approval for higher FII/FPI stake will offer Bharti Airtel multiple options to raise funds, especially from overseas investors. This, coupled with any increase in stake by entities controlled by the Government of Singapore (Singtel/GIC), would enhance investor confidence.

“The source of capitalisation for the company would now be GIC (Government of Singapore) via Singtel, which has deeper pockets than Sunil Bharti Mittal,” said a Mumbai-based analyst.

In addition to the financial muscle, Singtel’s expertise in next-generation technologies should also help Bharti Airtel. Singtel is expected to roll out a nationwide 5G network in Singapore. 

The government’s go-ahead for Airtel comes a few days before the company has to clear statutory liabilities of up to Rs 35,586 crore, of which Rs 21,682 crore is licence fee and another Rs 13,904.01 crore is spectrum dues (excluding the dues of Telenor and Tata Teleservices).

Bharti Telecom is the promoter entity which owns 41.2 per cent in Bharti Airtel. While Singtel owns 48 per cent in Bharti Telecom, the Mittals own 52 per cent.

Prior to the recent equity raise, Singtel owned around 35 per cent in Airtel, while Sunil Mittal and his family held around 27 per cent stake in Bharti Airtel.

Last week, Airtel announced allotment of 323.5 million equity shares to eligible institutional buyers at an issue price of Rs 445 per share as part of the $2-billion (around Rs 14,000 crore) qualified institutional placement (QIP) that closed on Tuesday.

The firm is raising funds to make payments towards its adjusted gross revenue (AGR) liability.

The net proceeds of the funds raised will primarily be used to augment the company’s long-term resources and strengthen balance sheet, servicing and/or repayment of short-term and long-term debts, capital expenditures, statutory dues, long-term working capital requirements, and general corporate purposes as permitted under applicable laws, the company said.

Airtel announced the closure of this issue period for the QIP and fixed the issue price at “Rs 445 per equity share, which is at a discount of 1.57 per cent to the floor price of Rs 452.09 per equity share”.

Axis Capital, Citigroup Global Markets India, and JPMorgan India acted as global coordinators and bookrunning lead managers, and, Goldman Sachs (India) Securities, BNP Paribas, DSP Merrill Lynch, HDFC Bank, and HSBC Securities & Capital Markets (India) were the bookrunning lead managers for the QIP issue and Goldman Sachs (Asia) L.L.C., Barclays Bank PLC.