Mittal family | Airtel: Mittal family plan to buy Airtel stake in Singtel hits valuation hike

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A mismatch in valuations is stalling a planned $1.5-2 billion share purchase by the family of founder Sunil Mittal of Singapore Telecommunications Ltd (Singtel), people familiar with the matter have said.

Singtel and the Mittal family are shareholders of Bharti Telecom, the sponsor company of Bharti Airtel. Also, both directly own shares in Bharti Airtel.

ET was first to report on May 26 that Singtel had entered into talks with Bharti

chairman Sunil Mittal to sell a small portion of his stake in the Indian telco to the Mittal family as part of his portfolio management strategy. The longtime Singaporean partner is keen to make a profit by selling Bharti shares and redeploying some capital into new investment opportunities.

Sources at both companies said the Mittals initially wanted to complete the stock acquisition by early June. They were also in active dialogue with banks such as DBS, Standard Chartered, Citi, JP Morgan, MUFG and Goldman Sachs and had even lined up $1.5 billion in lines of credit – in the form of rupee debt or through the channel foreign portfolio investors (REITs) – -for the acquisition of shares.

“They certainly didn’t give up on him but he was kicked out,” one executive said. “And one of the key factors is the valuation mismatch. Bharti stock has been quite volatile in recent months.”

In May, Airtel stock was 33% higher than a year earlier, although it was down from its high of Rs 781.80, which it hit on November 24. In the last three months, it has fallen by 12%. The stock ended Wednesday at Rs 693.95, up 1.41% from the previous day.

People familiar with the matter said the delay in closing the deal and the impending 5G spectrum auction could mean the deal is based on the strategy the partners are adopting during the bidding process and on the amount of money needed to acquire the airwaves, they said. .

Bharti and Singtel did not respond to questions.

precious good

Singtel has been a shareholder of Bharti Airtel since 2000. The Mittal family and Singtel own 50.56% and 49.44% respectively of Bharti Telecom, which in turn owns a 35.85% stake in Bharti Airtel. In addition, Singtel and the Mittal family through investment companies directly own 14% and 6.04% in the telco. The effective shareholding of the Mittal family in Bharti Airtel is 24.13% while that of Singtel is 31.72%.

The plan was for the Mittals to acquire about 4% of what Singtel holds in Bharti Airtel, or a sale of 2% stake in Bharti Telecom, as a transfer of shares between promoters. The sale of Bharti Airtel shares worth $1.5 billion would have reduced Singtel’s stake to less than 28.6%, while the sale of shares worth $2 billion l would have dropped to 27.60%, people familiar with the matter said.

In late May, Singtel said its underlying net profit for fiscal 2022 rose 11% year-on-year to S$1.92 billion, mainly driven by the turnaround of associate Bharti Airtel. . It posted a nearly 164% year-on-year jump in consolidated net profit to Rs 2,007.8 crore in the March quarter, its sixth consecutive quarter in the black.

Singtel Group CEO Yuen Kuan Moon said in a May 27 statement that his regional partner’s pre-tax contributions rose 21% to S$2.07 billion “due to double-digit increases in operating revenue and EBITDA from Airtel as it staged a strong recovery in India and saw sustained growth in its Africa operation.

In an earlier statement to ET, a Singtel spokesperson said: “We have been strategic investors in Airtel for decades and it remains a key investment in our international portfolio. We have not engaged any banks to explore such a sale and we will not comment on any market speculation. We follow market disclosure rules to report all material transactions.

5G auctions this month

With installment payments for the purchase of spectrum under the new relaxed payment scheme offered by the government, analysts expect an initial outlay for the purchase of 5G and other radio waves to be less than Rs 5,000 crore for operators like Bharti Airtel and Reliance Jio Infocomm. Motilal Oswal pegs Bharti Airtel’s total expenditure at Rs 15,000 crore ($2 billion) to Rs 20,000 crore ($2.5 billion) in the upcoming auction. Experts expect Airtel to raise equity – rights or preferential allocations – and debt as it has done in the past. The sale of Singtel’s stake, as many expect, should take place at that time.

Last October, Airtel had raised around Rs 5,247 crore as the first tranche of its Rs 21,000 crore rights issue. The remaining Rs 15,753 crore will be raised after the 5G auction.

Analysts estimate that Airtel’s rights issue forces its promoters, Singtel and Mittal family’s Bharti Enterprises, to contribute around Rs 6,661 crore and Rs 5,067 crore respectively. If Singtel does not fully subscribe to its “rights” quota and its share is transferred and subscribed by Bharti, then the shareholding will also be recalibrated or adjusted, giving the same result in favor of the Mittal family.

In 2019, Singtel purchased shares worth $525 million in Airtel, which was in the midst of a fundraising frenzy to boost its balance sheet amid the need to make statutory payments and invest in its network to better compete with its rival Reliance Jio.

Earlier this year, Google agreed to invest $700 million (Rs 5,224.4 crore) from its $10 billion Google for India digitization fund to buy a 1.28% stake in Bharti Airtel by through a preferential issue of shares at 734 rupees each. The remaining $300 million will be used over the next five years for several commercial deals, such as Bharti Airtel’s plans to make smartphones more affordable to get around 350 million feature phone users to switch to devices that take support online access.

Telecom analysts believe T1FY23E will see slower mobile revenue growth due to declining subscriptions for Bharti and Vodafone Idea Limited; less 4G net addition due to declining smartphone sales, so little benefit from premiumization; negligible benefit of the December 21 price increase, with the exception of RJio which will benefit from a higher proportion of long-term charging subscriptions.

“Bharti India’s EBITDA will increase by 1.6% QoQ (25.2% YoY) and additional EBITDA margin will be limited by higher diesel prices. Bharti’s African dollar revenue and EBITDA will grow 0.8% quarter-on-quarter to $1.2 billion and 0.5% quarter-on-quarter to $579 million, respectively,” said ICICI’s Sanjesh Jain. Securities.

“On a consolidated basis, we expect Bharti’s EBITDA margin to decline by 145 basis points quarter-on-quarter due to inflationary cost pressures. Key things to watch will be management feedback on 5G rollout, adding 4G subscribers and pulling home broadband and other new initiatives,” adds Pranav Kshatriya, Edelweiss.

The plan was for the Mittals to acquire about 4% of what Singtel holds in Bharti Airtel, or a sale of 2% stake in Bharti Telecom, as a transfer of shares between promoters. The sale of Bharti Airtel shares worth $1.5 billion would have reduced Singtel’s stake to less than 28.6%, while the sale of shares worth $2 billion l would have dropped to 27.60%, people familiar with the matter said.

In late May, Singtel said its underlying net profit for fiscal 2022 rose 11% year-on-year to S$1.92 billion, mainly driven by the turnaround of associate Bharti Airtel. . It recorded a nearly 164% year-on-year jump in consolidated net profit to ₹2,007.8 crore in the March quarter, its sixth consecutive quarter in the black.

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