Billionaire Mittal Revives Bharti Bond Sale: Corporate India

Sunil Bharti Mittal
Sunil Bharti Mittal, chairman and chief executive officer of Bharti Enterprises Ltd. Photographer: Denis Doyle/Bloomberg

Bharti Airtel Ltd., India’s biggest telecom company, will revive a plan to sell its first bonds to reduce pressure on cash flows with 508 billion rupees ($9.3 billion) of loans due in the next four years.

The company, controlled by billionaire Sunil Mittal, may start the process to sell the debt in the “coming quarter,” Akhil Gupta, a director at India’s biggest wireless operator, said in an interview in Mumbai. The company had a total debt of 690 billion rupees as of March 31, the most among India’s 13 telecom operators.

The proposed bond sale will help Bharti extend the average maturity of its debt, which the company borrowed from banks for its $9 billion acquisition in Africa and for rights to use airwaves at home, and help the mobile-phone operator improve cash flow that dropped 21 percent in the year ended March 31. Bharti has missed analyst earnings estimates for 11 straight quarters as intensifying competition in the world’s second-largest wireless market pulled call rates to a penny a minute.

“It’s positive that they will be able to extend the maturity,” said Mehul Sukkawala, an analyst at Standard & Poor’s in Mumbai, who rates the company’s credit BB+, the first non-investment grade. Additional funds will allow them to use free operating cash flow to reduce debt and “allow them to refinance in the future.”

Yields on Bharat Petroleum Corp. 4.625 percent dollar notes maturing October 2022, and rated BBB- by Fitch Ratings, a similar level as Bharti, traded at 4.4 percent, according to Trace, the price reporting system of the Financial Industry Regulatory Authority.

Borrowing Leeway

“It makes sense for Bharti to reprice some of the loans, with new bonds,” said Hemant Dharnidharka, Bangalore-based head of credit research at SJS Markets Ltd. “If they can convert loans into bonds, they will have leeway to borrow more.”

Bharti Airtel’s shares have dropped 8 percent this year, making it the third-worst performer on the benchmark BSE India Sensitive Index this year. They rose 0.3 percent to 315.1 rupees at 10:58 a.m. in Mumbai.

The operator will continue to reduce debt “organically,” Gupta, the managing director of Bharti Airtel’s tower unit, said yesterday. Vodafone India Ltd. had a net debt of 300 billion rupees, Chief Executive Officer Marten Pieters said last month.

Bharti Airtel, 32.3 percent owned by Singapore Telecommunications Ltd., plans to reduce the ratio of its net debt to earnings before interest, taxes, depreciation and taxes to 2 from 2.55 over the next 12 to 18 months, Gupta said.

Profit Drop

Bharti’s profit may drop 15 percent to 36.3 billion rupees in the year ending March 31, according to the median estimate of 45 analysts surveyed by Bloomberg. That will be the third straight annual drop in net income.

Interest expense at Bharti increased 50 percent in the 12 months to March 31, while free cash flow dropped 21 percent to 56.4 billion rupees.

The company will begin to restructure some of its debt with the bond issue after completing the listing of the tower unit, Bharti Infratel Ltd., this year, Gupta said.

Bharti Airtel had planned the bond sale in April 2011, according to a statement by Fitch Ratings, which rated its $750 million debt. In November the same year, the company said it planned to raise as much as $1 billion.

“They should be able to raise the funds if the spreads are attractive,” said SJS Markets’ Dharnidharka. “The sooner the better, as there’s enough demand for Indian debt.”

Bicycle Parts

Mittal, 55, who started his career making bicycle parts in 1976, is seeking to raise as much as 45.3 billion rupees in the IPO of Bharti Infratel. The share sale will provide an exit for companies including Temasek Holdings Pte, Goldman Sachs Group Inc. and Citigroup Inc., which bought a $1 billion stake in 2007.

The unit will use 10.9 billion rupees to add 4,813 towers, according to the company’s prospectus. It will use 12.1 billion rupees to upgrade and replace existing towers.

“There is so much data growth in India that is going to drive tower tenancy going forward,” Gupta said. “For the existing operators who are rolling out 3G, to cover the same area with data that they’re covering with 2G, they will need many more towers.”

Indus Towers

The company hired Standard Chartered Plc, JPMorgan, Barclays Plc, Bank of America Merrill Lynch, Enam Securities Pvt., HSBC Holdings Plc, Kotak Mahindra Capital Co., Deutsche Bank AG and UBS AG for the tower unit sale.

The initial share sale of another venture Indus Towers Ltd., will be delayed until after a “cool-off” period of six months to one year following the Bharti Infratel share sale, Gupta said. Indus Towers’ partners include Vodafone India Ltd. and Idea Cellular Ltd.

Mittal’s net worth is estimated at $6.9 billion, according to the Bloomberg Billionares Index. His 27 percent stake in Bharti Airtel is worth almost $6 billion today.

Bharti Airtel on May 24 agreed to buy 49 percent of Qualcomm Inc.’s fourth-generation wireless venture, which owns licenses to operate in four telecom zones including the nation’s two largest cities. Bharti, based in New Delhi, also participated in the 4G auction in 2010, agreeing to pay 33.1 billion rupees for permits in the states of Maharashtra, Karnataka, Punjab and Kolkata.

‘Growing Markets’

Bharti bid 123 billion rupees in the 2010 auction of 3G wireless permits to introduce faster wireless services and tap India’s growing market for data services like streaming video and songs. The mobile-phone carrier is also investing more in its Africa operations after buying assets on the continent from Kuwait’s Mobile Telecommunications Co. the same year.

India’s wireless market is forecast by research firm Gartner Inc. to surpass 872 million active users by the end of 2015, compared with 699 million active mobile subscribers in September, according to the Telecom Regulatory Authority of India.

“They are present in growing markets,” said S&P’s Sukkawala. “If they are able to improve their operating performance, that will provide them with additional cash flows.”

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