Foreign investors mount pressure on Bharti Tele for IPO

Sharad Mistry

Mumbai, Nov 20: Warburg Pincus and SingTel, two of the main foreign partners of Bharti Tele-Ventures (BT-V), have indicated the company to push ahead with the much-talked about initial public offering (IPO) latest by January 31, 2002 failing which they may be forced to sell part or whole of their holding in the company.

BT-V intends to raise a part of the whopping Rs 3.7 billion it requires to fund its ongoing projects while also to repay the Rs 2 billion loan facility extended by Industrial Development Bank of India to Bharti Cellular, one of the group companies. BT-V has agreed to repay the loan from the proceeds of the IPO.

While Warburg Pincus holds 20.58 per cent in the Rs 185.34 cr equity capital of BT-V, SingTel, through its subsidiary firm, holds 17.73 per cent. Bharti Telecom Ltd holds 51.6 per cent, American Insurance Fund (AIF) four per cent and others, including International Finance Corporation (IFC) 1.8 per cent. Under the memorandum of understanding (MoU) with the two foreign partners, BT-V was expected to ‘use all its reasonable efforts to complete a public offering of its equity shares and list them on an Indian stock exchange prior to October 31, 2001’.

This deadline has expired last month without the BT-V shares listed on the Indian stock exchange. The foreign partners have indicated the need for hastening the delayed IPO process.

“There is the clause that permits the foreign partners to sell their shares if the IPO is delayed beyond the time specified in the MoU,” said Bharti Tele-Ventures managing director Akhil Gupta. “However, they have preferred to hold on to their investments as a result of which we are offering 185 mn new shares and not the existing shares of any of the original holders”. This Mr Gupta said, is an “indication of their confidence”.

As per the 481-page document filed with Sebi last week, in the event of the IPO not going through by October 31, deadline, the two foreign investors may be forced to invoke the other clause under the MoU, whereby they have a right to sell all or part or their holding in BT-V latest by January 31, 2002, albeit through a three month notice.

Within a week of the expiry of the October 31 deadline, BT-V filed its 481-page offer document last week, with the Securities and Exchange Board of India (Sebi), the clearance of which is awaited.
After the Sebi clearance, the company is expected to commence the book building process sometime next month. JM Morgan Stanley and DSP Merrill Lynch are the book running manger and co-book running lead manager, respectively, for the issue.

“Any foreign investor, before making investments in unlisted company would want to have a safety and exit clause,” said a source from a leading investment banker. “With this clause they want to protect their investments and see that they can monetise their investments during the specified time.

Under the MoU the foreign partners, through a three-months’ notice, have therefore, a right to sell all or part of their holding in BT-V forcing the company to enter the IPO market by January 31, 2002.
Under the MoU, BT-V has agreed to ‘use all its reasonable efforts to complete a public offering of its equity shares and a listing on an Indian stock exchange prior to October 31, 2001. If it fails to do so by that date, BT-V faces the threat of from these two partners the company will have to get its shares listed on Indian stock exchange latest by January 31, 2002 subject to a notice from the two partners.

Sources in the investment banking industry indicate that the overall size of the public offering would be around Rs 750 crore to Rs 1,000 crore. The balance would be met through a combination of resources, including vendor financing or suppliers credit, internal accruals, borrowings and the proceeds of the planned offering.