Bharti Airtel fell 3.4 percent to close at Rs 307 on Friday even as the company’s Board has approved fundraising plans of up to Rs 32,000 crore through a mix of rights issue and bond. The move arms the company with firepower to take on market competition intensified by Reliance Jio.
In a statement here, Bharti Airtel said the Board of Directors have “approved the fundraising of up to Rs 32,000 crore through rights issuance of up to Rs 25,000 crore and Perpetual Bond with equity credit up to Rs 7,000 crore”.
The terms of the rights issue cleared by the Board include price of Rs 220 per fully paid equity share (a premium of Rs 215 per fully paid equity share over face value of Rs 5 per share); and a rights entitlement ratio of 19 shares for every 67 shares held by eligible shareholders, the statement added.
The rights issue is aggressively priced at Rs 220 per share, or a discount of over 30 percent from Thursday’s closing price of Rs 317.95 on BSE.
The mega fund-raising plans outlined by Bharti Airtel comes just days after Vodafone and Aditya Birla Group said they will infuse over Rs 18,000 crore into India’s largest telecom operator Vodafone Idea Ltd through a rights issue.
Brokerage firms see it as a welcome move and should strengthen the balance sheet of the telecom major, but since the rights issue is at a discount, the dilution in earnings should result in a correction of the stock price, suggest experts.
“Despite the steep dilution, the fund raising plan is a welcome positive which will allow Bharti to be self-sufficient and manage operations without any ARPU increase. We maintain a buy call with a target price of Rs 380,” Motilal Oswal said in a report.
“Considering that the rights issue is at a discount, the dilution in earnings should result in a correction of the stock price from Rs 318 now to Rs 296 over the record date. In FY19 net debt stands at Rs 1,148 billion, with net debt/EBITDA of ~4.5x. However, post the Rs 250 bn fundraise, FY19 net debt/EBITDA would come down sharply to 3.5x with net debt of Rs 898 billion,” it said.
Another brokerage firm, CLSA retains its buy rating on Bharti Airtel with a target price of Rs 410 which translates into an upside of nearly 30 percent from Thursday’s price.
Capital raising is lower its net debt by 30 percent if proceeds are used for deleveraging. The equity issuance, though large, will strengthen the balance sheet, said the report.
The global investment bank further added that over the past year, Bharti Airtel’s revenue market-share defence has been commendable. “We will revise estimates once all approvals for capital raising are in place,” said the report.
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