Bharti Airtel Ltd's planned $2.8 billion equity issuance will improve its Funds from operations (FFO) net leverage to around 2 times and provide funds to strengthen its market position, according to Fitch Ratings.
Bharti will raise the equity in three tranches, and a quarter of the proceeds to be received upfront and the balance in two instalments within three years.
Bharti's management remains committed to an investment-grade rating. The company raised about $9 billion in the financial year ended March 2020 (FY20) and FY21 via equity issuance, selling a stake in subsidiary Airtel Africa Plc and the sale-and-leaseback of towers in Africa. The management aspires to achieve a debt-to-EBITDA ratio of around 2 times in the long term.
Fitch forecast Bharti's capex to increase to about $5 billion in FY22 (FY21: $4.6 billion), of which $1.5 billion is likely to be paid upfront to acquire 5G spectrum assets.
“We believe that the company will also seek to strengthen its fibre infrastructure - connecting towers with fibre and backhaul infrastructure to prepare its network to launch 5G services in 2022-2023. We believe that capex on 5G infrastructure during 2022-2023 will replace 4G investments, as 4G coverage is largely complete,” it said.
Bharti revenue and EBITDA grew by 15% and 30%, respectively, year-on-year in 1QFY22.
Industry ARPU To Rise
Fitch forecasts the industry's monthly average revenue per user (ARPU) to rise by 15-20% to Rs175 ($D2.4) in the next 12 months (1QFY22: Rs 146), on headline tariff increases and increasing migration of 2G users to higher-priced 4G plans.
Bharti increased the minimum amount that a pre-paid user must pay to keep a number active to Rs 79 ($1) from Rs 49. Management believes that industry-blended ARPU needs to increase to around Rs 200 in the next 12 months and to Rs 300 in the medium term.
Bharti has paid about $2.4 billion of the total of $6.4 billion owed to the Department of Telecommunications in a dispute over the amount of adjusted gross revenue (AGR) dues. Fitch has factored in $4 billion for AGR dues remaining in leverage calculation, despite the Supreme Court allowing the balance to be paid over 10 years from March 2022.
Bharti's main shareholders, Bharti Telecom and Singapore Telecommunications Limited will subscribe to the rights issue. Singtel has yet to announce its exact subscription, it added.
Fitch expects wireless market leader Reliance Jio Infocomm, a subsidiary of Reliance Industries Ltd), and Bharti Airtel to increase their combined revenue market share among private telcos to 80-82% (June 2021: 77%-78%), at the expense of Vodafone Idea.
The third-placed Vodafone Idea, the rating agency believes, may lose 50 million to 70 million subscribers in the next 12 months. Vodafone Idea has lost about 180 million subscribers in the last three years, with 255 million at the June-end of 2021. Vodafone Idea is struggling and needs to raise new funds to pay for capex, AGR dues and repay maturing debt.
