However, post the INR250b fund raise, FY19 net debt/EBITDA would come down sharply to 3.5x with net debt of INR898b.
Bharti Airtel’s (BHARTI) board has approved an Rs 320 billion fund raise, which includes a rights issue of `250 billion and perpetual bonds with equity credit of `70 billion (foreign denominated). Issue price of `220/share implies an issuance of 1,134m rights shares, which would result in 22% post equity dilution.
The fund-raise is likely to bring down net debt/EBITDA sharply to 3.5x (FY19), as against the current estimate of 4.5x. Additionally, the plans of Africa IPO and Bharti Infratel stake sale will help raise Rs 400 billion, which should reduce its net debt to `475 billion (net debt to EBITDA of 1.6x) by FY21. Moreover, we believe that capex intensity has peaked out, which should reduce its annual cash burn from INR169b in FY19 to positive FCF of ~INR43b in FY21, thus restricting the increase in net debt.
In our view, 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.
The Rs 250 billion rights issue will be raised in the ratio of 19:67 (i.e., 19 shares for every 67 shares held) at a price of `220/share (which is a steep 30% discount to CMP). This implies 1,134m rights shares, resulting in post equity dilution of 22%. Since the rights issue is at a discount, the dilution in earnings should result in a correction of the stock price from `318 now to `296 over the record date.
FY19 net debt stands at RS 1,148 billion, with net debt/EBITDA of 4.5x. However, post the INR250b fund raise, FY19 net debt/EBITDA would come down sharply to 3.5x with net debt of INR898b.
Bharti Africa IPO ($1.5 billion or `105 billion) and the 53.5% Bharti Infratel stake sale (`290 billion) could help raise overall ` 400 billion.