Airtel aims to cut $4.6 billion debt with Africa unit IPO

Airtel India revenue Q2Telecom operator Bharti Airtel is planning to reduce its net debt that surged almost 45 percent to $14.6 billion over four years.

The Sunil Mittal-promoted company borrowed to buy spectrum and invested in networks to compete with Mukesh Ambani-promoted Reliance Jio, Bloomberg reported.

Listing of its Africa unit and selling some equity stake in its Indian tower business are the two options for Airtel as part of the strategy to pare $4.6 billion from its net borrowings over the next three years.

India’s top mobile operator plans to raise as much as $1.5 billion by listing a quarter of equity in its Africa unit by early 2019 in either London or South Africa.

Airtel will also look to sell part of its equity stake in the $14.6 billion tower giant after Bharti Infratel merges with Indus Towers.

The report said Airtel posted decline in earnings in the last eight quarters — putting Bharti Airtel at the risk of a downgrade to junk at both Moody’s Investors Service and S&P Global Ratings. Reliance Jio started 4G operations in September 2016.

The pressure to provide 4G services across India and expand broadband before Jio roils this segment too, will imply capital spending of about Rs 240 billion or $3.6 billion in the year to March 2019. The company invested Rs 250 billion last fiscal.

S&P Global Ratings put a negative outlook on Bharti Airtel’s BBB- rating on May 3 after cut-throat pricing led to weaker-than-expected earnings and given the need for high capital spending.

“There’s a one-in-three possibility of a ratings downgrade for Airtel in the next 18 months if the financials don’t improve as expected “or if deleveraging does not materialize,” S&P said in a statement.

Moody’s affirmed the company’s Baa3 rating with a negative outlook on April 26, saying “demonstrated progress” toward debt reduction was necessary to maintain the investment grade.

Airtel’s shares have dipped 23.7 percent this year, compared with a 3.6 percent rise in the S&P BSE Sensex.

Airtel will engage with investors to evaluate a strategic stake sale once the merger of Bharti Infratel and Indus is complete, according to an April 25 filing. Airtel will own equity stake of up to 37.2 percent in the new entity that will control more than 163,000 towers.

Airtel sold about 8,300 towers in seven African countries for about $1.7 billion in 2015 and followed with the sale of its Tanzanian tower business for $179 million a year later. In 2016, Airtel also sold its Burkina Faso and Sierra Leone units.

India’s top carrier raised $2 billion through the sale of its African tower assets and $1 billion from the sale of its Burkina Faso and Sierra Leone businesses. Airtel in 2010 acquired the African assets of Zain for an enterprise valuation of $10.7 billion.