Bharti Airtel May Raise USD 3 Billion From Asset Sale

Bharti Airtel may raise at least USD 3 billion from the sales of its assets in the next 12 months, according to Fitch Ratings.

Also, the average revenue per user (Arpu) for the telecom players may improve substantially in the next 12 months as they look to weed out low Arpu users, according to analysts.

Edelweiss Research said the telecom industry structure is changing favorably. After sustained competitive intensity, all the operators are looking to sell their fiber/tower assets, which will increase the possibility of sharing and reducing debt. Besides, operators are looking to simplify tariff structure while weeding out low-Arpu customers. This, along with the lack of new price action will lead to stability in Arpus.

As per Fitch, Bharti Airtel will raise about USD 1.1-1.2 billion through an initial public offering (IPO) of its African entity in mid-2019, after raising about USD 1.45 billion through a private placement in the second half of financial year2018-19. Also, additional funds through the sale of its stake in the merged tower entity of Indus-Infratel will come.

The planned asset sales, including a potential IPO of Airtel’s African entity and the sale of its stake in the Indus-Infratel tower company, is expected to ease pressure on leverage, Fitch Ratings said in a statement on Monday.

Indus Towers and Bharti Infratel are in the process of merging and approval is expected before April 2019. In December last year, Bharti Airtel had announced that its Board is considering various fund-raising options to deleverage the balance sheet.

Besides, an imminent mobile tariff recovery in India will also help the industry.

Once Reliance Jio achieves revenue market share of around 30 % by mid-2019, it would have less incentive to keep tariffs low. Bharti Airtel has a revenue market share of around 32-33%, while the market share of the largest telecom operator Vodafone-Idea is likely to fall below 30% in 2019.

“The incumbent operators’ (Airtel) introduction of a minimum mobile tariff of Rs 35 a month, higher data usage and easing competition from newcomer Reliance Jio will drive an increase in average industry tariff by at least 10% to $1.60 in 2019,” Fitch said.

Post nine consecutive quarters of decline, Arpu improved to Rs 104 in December quarter from Rs 100 from the preceding quarter as the telecom player weeded out low-Arpu customers and its minimum mobile tariff started to take effect.

Edelweiss Research in an analyst note on Monday said high network investments will help Bharti Airtel sustain 4G subscriber addition momentum, which is crucial for maintaining revenue market share. “We expect Arpu to start improving over the next 12 months as operators focus on RoCE (return on capital employed) over market share.”

Bharti Airtel’s revenue and Ebitda for FY2020 are also expected to rebound as data usage and tariffs rise. The company’s African business has performed better and the revenue and Ebitda for fiscal 2019-20 to increase by around 10% and 30%, respectively, driven by stable tariffs, rising data usage and growing adoption of e-wallet services. “We expect Bharti to further strengthen its market position in some smaller African markets, after having achieved number one or a number two in 12 out of its 14 markets,” Fitch said.

Another analyst note from Elara Capital said, “We continue to expect elevated access charges with the new minimum tariff strategy encouraging correction of traffic asymmetry, though the positive effects of which will be visible only in FY21.”―DNA India