Mittals, SingTel to buy 6% more in Airtel

No fresh issuance, shares to be acquired from Mittal family-owned ICIL, open market

The promoters of Bharti Airtel, the Mittal family and SingTel, are looking to acquire an additional six per cent stake in the country's largest telecom firm.

The move may lend some support to the company's share price, which has declined 11 per cent over six months.

At Monday's market price, the value of the stake is Rs 7,900 crore. The promoters will acquire the additional six per cent stake through Bharti Telecom, which holds 43.96 per cent in Bharti Airtel. The additional stake in Bharti Airtel will make the telco a subsidiary of Bharti Telecom.

The Mittal family and Singapore Telecommunications (SingTel) are infusing Rs 2,500 crore equity capital into Bharti Telecom through a rights issue to enable the transaction.

The acquisition of shares will be funded through debt and equity.

SingTel owns a 40 per cent stake in Bharti Telecom, the Mittals own 51 per cent, while Temasek owns seven per cent.

In a recent stock exchange filing, SingTel said it had subscribed to the rights offer of Bharti Telecom through its wholly owned subsidiaries, Pastel Limited and SingTel International Investments.

The objective of the rights issue was to enable Bharti Telecom to "further acquire equity shares of Bharti Airtel," said SingTel's filing.

Other than raising fresh equity capital of Rs 2,500 crore from the promoters, Bharti Telecom also has shareholder approval to raise up to Rs 15,000 crore debt, including non-convertible debentures.

Responding to an email query by Business Standard, the Bharti group spokesperson said, "SingTel has subscribed to its portion and thus, maintained its shareholding in Bharti Telecom. There is thus, no increase in its stake in Bharti Telecom. Over time, Bharti Telecom intends to use funds raised to further acquire shares in Bharti Airtel."

The reason behind the acquisition of additional stake in Bharti Airtel is not clear, other than the fact that the promoters want to make Bharti Airtel a subsidiary of Bharti Telecom. Taking the stake in Bharti Airtel to over 50 per cent will make Bharti Telecom its holding company.

Romal Shetty, partner and head of the telecom practice at KPMG, said, "Promoters tend to hike stakes in companies to infuse confidence."

The market has been punishing telecom stocks over the last few months, as operational metrics have deteriorated and fears of heightened competition have increased risks.

The move will be seen positively by investors, as it suggests that the promoters see value in the company. Bharti Airtel's stock is down 11 per cent over six months.

In a note, an IIFL analyst wrote that Bharti Telecom would be able to service the debt it took on its books through the dividend income it received from Bharti Airtel, which was about Rs 800 crore.

"If Bharti Telecom were to fund the acquisition 2:1 by debt-equity, the dividend would be sufficient to service the debt," he added.

The acquisition of the additional stake will not happen through fresh issuance.

Analysts said Bharti Telecom's AGM notice mentioned it intended to acquire Bharti Airtel shares from Indian Continental Investment Limited, which owns a 6.65 per cent stake.

Bharti Telecom might also consider buying shares from the open market, given the fall in the share price, analysts said.