Reliance Jio vs Airtel: Ambani, Mittal to raise funds from overseas for battle in India
This development comes about a month after Jio tapped the Korean credit market to raise $1 billion from Korea Trade Insurance Corporation.
- Jul 19, 2018,
- Updated Jul 19, 2018 6:30 PM IST
A week after Bharti Airtel was reportedly in talks with investment bankers to raise a syndicated overseas loan of $1 billion, perhaps as early as August, the buzz is that Reliance Industries (RIL) is shopping around to raise up to $2.5 billion in loans from overseas market.
According to The Economic Times, RIL is negotiating with more than a dozen banks to arrange the loan in single or multiple tranches as it steps up pace of investments in telecom - Reliance Jio Infocomm has recently announced the launch of its fixed line broadband service, JioGigaFiber - and retail businesses.
A source told the daily that the loan was aimed at refinancing existing offshore debt raised about two-and-half years ago and would reduce average borrowing cost or extent maturities. It is expected to be priced between 100 and 125 basis points above Libor (London Interbank Offered Rate) with a likely tenor of 3-5 years.
This development comes about a month after Jio tapped the Korean credit market to raise $1 billion from Korea Trade Insurance Corporation. In addition, the company has recently raised Rs 2,500 crore by selling domestic corporate bonds and another $500 million through a syndicated Samurai loan from three Japanese banks.
Airtel, similarly, seems to be pulling out all stops to take on the deep-pocketed Jio. Over the past year the telco has been raising funds by progressively reducing its stake in its listed tower unit, Bharti Infratel, to cut debt and free up cash for its capex investments. The latter is pegged at Rs 24,000 crore in the current fiscal in order to expand its 4G networks and maintain Airtel's lead in the race. The Sunil Mittal-led company has reportedly raised over Rs 14,000 crore so far.
It is now reportedly looking at monetising its profitable Africa operations. According to the daily, Airtel is in talks with US-based PE firm Warburg Pincus to raise $1.25-1.5 billion by divesting a 10-15 per cent stake in its Netherlands-based unit, BAIN BV, which controls its Africa operations. This development comes seven months after Airtel's announcement that Warburg Pincus will acquire up to a 20 per cent stake in its DTH arm Bharti Telemedia for about $350 million.
To remind you, Airtel entered the African market in June 2010 after it stuck a deal with Zain's mobile operations in 15 African countries, including Nigeria, Kenya, Tanzania, Rwanda and Niger, which are among the continent's biggest and fastest-growing economies. BAIN (Bharti Airtel International Netherlands) BV is the company's wholly-owned subsidiary and the holding company of the Africa operations.
"The proposed transaction is a precursor to its planned listing [on international stock exchanges] of the African business in the overseas market in which Bharti Airtel aims to raise a similar amount," a source told the daily, adding that the deal is expected to value BAIN BV at $8-9 billion. The deal is likely to be completed by December.
Back in February, an analyst report from PhillipCapital had noted that "Bharti's African operations have gained tremendous traction over the last year", showing "profit consistency" over the past several quarters. "The listing of its African operations will provide Bharti with the options to monetise operations as needed," said the report, adding that BAIN BV's IPO "will provide Bharti with significant ammunition to fight price wars in India".
Due to the prolonged tariff war, the country's largest telco has seen its net profits steadily fall over the past six straight quarters, and its India operations reported its first loss in 15 years in the January-March quarter of the last fiscal. It had managed to stave off a loss at the consolidated level thanks to its Africa operations, which recorded a quarterly profit of Rs 698.7 crore, compared with Rs 26.3 crore a year ago.
This listing of BAIN BV would not only help Airtel to unlock value, but would also help bring down its overall debt, which stood at Rs 95,000- crore debt at the end of March this year, up about 4 per cent year-on-year. The IPO route, moreover, will enable the company to raise funds at short notice by diluting stakes in the listed company in future. "This will be similar to Bharti Infratel, where Airtel had raised billions of dollars through an IPO and subsequent sale of shares while still holding significant stake that is being diluted to raise fresh capital in the holding company, Bharti Airtel," explained a source.
"Its [Airtel's] ability to monetise its African operations would not only provide the company with a significant war chest, but would also send a signal to its competition about its ability to sustain low tariffs for longer periods," noted PhillipCapital, adding, "With this strategic move from Bharti, we believe that the Indian telecom market is likely to stabilise sooner than expected, and tariff growth should resume in the forthcoming quarters". That is certainly great news for the stakeholders of the bleeding sector.
A week after Bharti Airtel was reportedly in talks with investment bankers to raise a syndicated overseas loan of $1 billion, perhaps as early as August, the buzz is that Reliance Industries (RIL) is shopping around to raise up to $2.5 billion in loans from overseas market.
According to The Economic Times, RIL is negotiating with more than a dozen banks to arrange the loan in single or multiple tranches as it steps up pace of investments in telecom - Reliance Jio Infocomm has recently announced the launch of its fixed line broadband service, JioGigaFiber - and retail businesses.
A source told the daily that the loan was aimed at refinancing existing offshore debt raised about two-and-half years ago and would reduce average borrowing cost or extent maturities. It is expected to be priced between 100 and 125 basis points above Libor (London Interbank Offered Rate) with a likely tenor of 3-5 years.
This development comes about a month after Jio tapped the Korean credit market to raise $1 billion from Korea Trade Insurance Corporation. In addition, the company has recently raised Rs 2,500 crore by selling domestic corporate bonds and another $500 million through a syndicated Samurai loan from three Japanese banks.
Airtel, similarly, seems to be pulling out all stops to take on the deep-pocketed Jio. Over the past year the telco has been raising funds by progressively reducing its stake in its listed tower unit, Bharti Infratel, to cut debt and free up cash for its capex investments. The latter is pegged at Rs 24,000 crore in the current fiscal in order to expand its 4G networks and maintain Airtel's lead in the race. The Sunil Mittal-led company has reportedly raised over Rs 14,000 crore so far.
It is now reportedly looking at monetising its profitable Africa operations. According to the daily, Airtel is in talks with US-based PE firm Warburg Pincus to raise $1.25-1.5 billion by divesting a 10-15 per cent stake in its Netherlands-based unit, BAIN BV, which controls its Africa operations. This development comes seven months after Airtel's announcement that Warburg Pincus will acquire up to a 20 per cent stake in its DTH arm Bharti Telemedia for about $350 million.
To remind you, Airtel entered the African market in June 2010 after it stuck a deal with Zain's mobile operations in 15 African countries, including Nigeria, Kenya, Tanzania, Rwanda and Niger, which are among the continent's biggest and fastest-growing economies. BAIN (Bharti Airtel International Netherlands) BV is the company's wholly-owned subsidiary and the holding company of the Africa operations.
"The proposed transaction is a precursor to its planned listing [on international stock exchanges] of the African business in the overseas market in which Bharti Airtel aims to raise a similar amount," a source told the daily, adding that the deal is expected to value BAIN BV at $8-9 billion. The deal is likely to be completed by December.
Back in February, an analyst report from PhillipCapital had noted that "Bharti's African operations have gained tremendous traction over the last year", showing "profit consistency" over the past several quarters. "The listing of its African operations will provide Bharti with the options to monetise operations as needed," said the report, adding that BAIN BV's IPO "will provide Bharti with significant ammunition to fight price wars in India".
Due to the prolonged tariff war, the country's largest telco has seen its net profits steadily fall over the past six straight quarters, and its India operations reported its first loss in 15 years in the January-March quarter of the last fiscal. It had managed to stave off a loss at the consolidated level thanks to its Africa operations, which recorded a quarterly profit of Rs 698.7 crore, compared with Rs 26.3 crore a year ago.
This listing of BAIN BV would not only help Airtel to unlock value, but would also help bring down its overall debt, which stood at Rs 95,000- crore debt at the end of March this year, up about 4 per cent year-on-year. The IPO route, moreover, will enable the company to raise funds at short notice by diluting stakes in the listed company in future. "This will be similar to Bharti Infratel, where Airtel had raised billions of dollars through an IPO and subsequent sale of shares while still holding significant stake that is being diluted to raise fresh capital in the holding company, Bharti Airtel," explained a source.
"Its [Airtel's] ability to monetise its African operations would not only provide the company with a significant war chest, but would also send a signal to its competition about its ability to sustain low tariffs for longer periods," noted PhillipCapital, adding, "With this strategic move from Bharti, we believe that the Indian telecom market is likely to stabilise sooner than expected, and tariff growth should resume in the forthcoming quarters". That is certainly great news for the stakeholders of the bleeding sector.