Billionaire Mittal's Pound Bonds Cash In on Modi's Palace Lunch

  • Bharti Airtel plans 500 million pound offer to refinance loans
  • Phone giant to boost capex by $750 million amid 4G rollout

On the day Indian Prime Minister Narendra Modi lunched with the Queen, billionaire Sunil Mittal’s Bharti Airtel Ltd. announced India’s first sterling bond sale since the global financial crisis.

The nation’s top mobile-phone operator is seeking to raise as much as 500 million pounds ($764 million) as it fends off refining tycoon Mukesh Ambani’s return to the telecommunications industry. Bharti has already raised $6.3 billion since early 2013 in notes issued in dollars, euros and Swiss francs, as it locks in borrowing costs that can be up to 4 percentage points cheaper than at home.

Modi has won about $160 billion in pledges for loans and investment from companies including Vodafone Group Plc by making 30 overseas trips since taking office in May 2014. His plans include bringing the Internet to 1.1 billion Indians in mainly rural areas. Bharti’s sterling proceeds will help it tackle Ambani-controlled Reliance Jio Infocomm Ltd.’s $15 billion roll out of a fourth generation wireless network this year, as well as refinance loans.

“Bharti is tapping investors across multiple currencies to diversify their funding sources,” said Raymond Chia, Singapore-based head of credit research for Asia ex-Japan at Schroder Investment Management Ltd. “Good names from India, with an appropriate pricing, will always get sponsorship.”

ICICI Bank Ltd. was the last Indian borrower to issue British bonds, selling 460 million pounds of notes in 2007, according to data compiled by Bloomberg. While no other Indian sterling deals have been publicly announced, issuers including Housing Development Finance Corp. are planning to sell 1 billion pounds of rupee bonds to investors in London, the U.K. Treasury said last week.

Bharti’s last offshore deal was a $1 billion note in June that sold at the firm’s lowest coupon for a dollar bond yet after investors bid for double the amount offered. Issuance across multiple currencies has helped to diversify its investor base and borrow for longer periods, the company said last week. 

“Airtel has a deep & wide access to debt capital across banks & capital markets,” Bharti said in an e-mailed response to a request for comment. “That allows us the ability to keep refinancing, preemptively. All our refinancing efforts are geared towards a diversified mix of sources, currencies and also elongating further the maturity of our debt, while bringing down the cost.”

The carrier had total debt of $10.1 billion at the end of September, data compiled by Bloomberg show. It’s planning to scale up capital expenditure to $3.5 billion in the fiscal year through March -- about $750 million more than usual -- to spur the company’s 4G plans, Mittal said this week. The operator is offering the services in at least 330 cities and towns across India, the world’s second-largest wireless market with 989 million subscribers.

“Bharti’s capex is a bit higher than we expected, but we understand that the company wants to be ready to compete effectively when Jio enters,” said Mehul Sukkawala, a Singapore-based analyst at Standard & Poor’s. “Raising money overseas can be 350 to 400 basis points cheaper than the cost of borrowing in the domestic market.”

Too Exposed?

The foreign excursions aren’t without risk. Bharti gets 68 percent of revenues from India and S&P said its rising foreign-currency debt exposure leaves it “exposed to sudden rupee depreciation.”

Fitch Ratings this week said Bharti ticked “all three negative boxes of minimal earnings in dollars, dollar-denominated debt and dollar-denominated capex” when naming Indian winners and losers if the rupee continues to fall. The currency has dropped 5 percent this year and lost about 22 percent since the start of Bharti’s foreign debt raising in 2013.

Further declines in the rupee would lift the firm’s leverage, because half its debt is in the greenback and none of that is hedged, Fitch said. The impact, however, would be “fairly small” and unlikely to hurt the carrier’s rating, the rating company said. It ranks Bharti at BBB-, the lowest investment-grade score.

Bharti’s chance of non-payment in one year has risen to 0.17 percent from 0.12 percent in June when Mukesh Ambani, India’s richest man, announced the year-end launch for Reliance Jio services, according to Bloomberg’s default-risk model, which tracks debt and share metrics. The rival network poses an unprecedented challenge to incumbents such as Bharti, Vodafone Group and Idea Cellular Ltd. The 4G roll out will mark Mukesh Ambani’s return to a sector where he crashed prices back in 2003 by selling bundled handsets and services for less than $8. He handed over that business to younger sibling Anil Ambani as part of a family feud settlement in 2005.

“What Reliance Jio will do is not something any one has seen being done by an entrant, with a new technology, in a well-penetrated, competitive telecom market,” said S&P’s Sukkawala.

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