Bharti Airtel To Raise $3 Billion To Pay Court-Ordered AGR Dues

Bharti Airtel Ltd. plans to raise $3 billion or Rs 21,500 crore—its second such exercise this year—to repay adjusted gross revenue dues to the government.

The telecom operator will raise $2 billion, or Rs 14,300 crore, via equity while the remaining $1 billion, or Rs 7,200 crore, will be through debt, according to an exchange filing on Wednesday. To be sure, the company has passed a resolution to raise $2 billion via debt but will now raise only $1 billion.

The fundraising is necessary as Airtel has to repay nearly Rs 34,260 crore by January 2020. After the fundraise, net debt of the Sunil Bharti Mittal and SingTel-backed telecom operator would increase to Rs 95,300 crore, while its leverage ratio would be close to 3.2 times.

The 15-50 percent hike in prepaid tariffs, which the company announced earlier this week, is expected to generate more cash, aiding debt repayments. To raise Rs 14,300 crore via equity, Airtel would have to issue close to 31 crore shares at Wednesday’s closing price, leading to an equity dilution of 6 percent.

The company will use the funds for any future payouts, which not only includes AGR liabilities but also debt refinancing.

The Supreme Court in October ruled that telecom operators would have to include revenue from non-core operations to calculate levies, resulting in carriers paying penalty and interest on the unpaid dues.

In February, Bharti Airtel had raised close to Rs 32,000 crore via rights issue and foreign currency-denominated perpetual bonds. A perpetual bond is a fixed income security with no maturity date, which means that the company will only have to make periodic interest payments linked to the bonds and will never have to repay interest amount. The amount raised via perpetual bonds will not form a part of debt.

The entry of Mukesh Ambani-led Reliance Jio Infocomm Ltd. in September 2016 started a price war. That triggered an industry-wide consolidation, leaving only three private telecom service providers. The sector’s top two operators by subscribers—Bharti Airtel and Vodafone Idea Ltd.—have debt of more than Rs 1 lakh crore each. The two operators also posted record losses in the quarter ended September.

Ratings agency Fitch Ratings Inc. had placed Bharti Airtel on negative watch after the adverse outcome in the AGR case. Moody’s Investors Service, too, said payment of these dues would weigh on the company’s credit profile despite a two-year spectrum moratorium and price hikes.

On Wednesdat, Bharti Airtel shares fell 0.37 percent to Rs 460.80 apiece on the NSE while the benchmark Nifty 50 gained 0.41 percent to end the day at 12,043.20 points.

Here’s what brokerages had to say about Airtel’s fundraising plan:

Citi

• Maintained ‘Buy’ with a price target of Rs 525.
• Capital raise likely aimed at increasing preparedness to pre-empt no relief on AGR.
• Fund raise arguably reflects uncertainty on monetisation of Bharti Infratel stake.
• Await further clarity on exact mode of capital raise and on promoter participation.

Morgan Stanley

• Maintained ‘Overweight’ with a price target of Rs 530.
• Fund raise to take care of worst outcome in AGR case.
• If part of AGR dues waived off, then company to use funds to repay debt.

Credit Suisse

• Maintained ‘Outperform’ with a price target of Rs 550.
• Fund raise to aid in any potential regulatory payments.
• Remain constructive on Airtel as it remains well-positioned to capitalise on pricing recovery.
• Tariff hike along with capital raise to bring down leverage from 4.3 times to 2.9 times by March 2021.