Bharti: building up a bond warchest, but for what?

Bharti Airtel, India’s largest mobile operator by sales, is looking to issue debt, possibly through a eurobond, according to India’s Economic Times.

Although a bond issue isn’t officially announced yet, the company confirmed to beyondbrics that six banks have announced that Bharti has approached them, asking for meetings to be set up with fixed income investors from Wednesday. The six on the list are Barclays, BNP, Deutsche Bank, JP Morgan, Standard Chartered and UBS. And Moody’s, the credit rating agency, has assigned a rating to the bonds already.

It’s still a little early to say how much the telecom operator is raising – although the Economic Times suggested $1bn.

Moody’s said the debt was to be euro-denominated, helping diversify the company’s debt profile which is strongly dollar-denominated, and that the telecom operator will use the funds for refinancing. It assigned a Baa3 rating to the notes. Laura Acres, senior vice president at the rating agency commented:

Bharti’s Baa3 rating is underpinned by its receipt of strong and growing
cash flows from its Indian operations, particularly in wireless, where
it enjoys a well-established and leading market position under the Airtel
brand… At the same time, concerns exist regarding its exposure to the risk of changes to the regulatory and political environments in some of the
countries in which it operates, especially after its 2010 investment into
15 (now 17) African countries.

Analysts, however, suspect Bharti would be looking for funds ahead of the 2G spectrum auction to be held in India this January.

“It would be going towards the upcoming spectrum auctions,” says Kamlesh Bhatia, a telecoms analyst at Gartner. “Because a lot of the bandwidth of the spectrum they have on 900Mhz is going to come up for renewal, especially in the metros.”

Last time India tried to sell off this 2G spectrum it was a big disappointment as the government – still in the shadows of the previous scandals – set the base price unreasonably high.

It looks like the government has done a better job setting the minimum price this time round and there will be takers at next year’s auctions. After some to and fro, on Friday ministers approved the Telecom Committee’s suggested prices for the bidding, due in January. The cost to the bidders is down by 25 per cent for the 900Mhz band and and 15 per cent for 1800Mhz.

The main players in this round will be Bharti, Vodafone and Idea, plus new kid on the block Reliance Industries, according to Suresh Mahadevan at UBS.

“This time the auction will go through and there is not going to be a lot of irrationality,” he says.

The one bit of news telecoms analysts are still watching for is the final M&A rules for the sector as they forecast consolidation in the growing Indian market. Yet inorganic growth isn’t likely to be Bharti’s aim in raising this money.

Mahadevan expects consolidation to happen among the smaller players in India’s telecoms sector, such as Aircel, Tata and Telenor.

“The reality is these three guys are not even making Ebitda [earnings before interest, tax, depreciation and ammortisation] today so for them the problem is one of lack of scale,” he adds. “M&A would allow them to get some scale into the business.”

Bharti Airtel shares were down 2.71 per cent on Tuesday.

Related reading:
India telecoms auction: a bit more affordable
, beyondbrics
India’s Airtel continues Africa push with deal in Congo
, beyondbrics
Fresh India M&A rules set to hinder telecoms consolidation
, FT