Bharti Airtel zonal office building in the northern Indian city of Chandigarh.
NEW DELHI/DUBAI: Qatar has bought a 5 percent stake in Indian telecoms firm Bharti Airtel Ltd for $1.26bn, the firm said yesterday, extending an overseas buying spree from mainly developed countries to Asia’s third-largest economy.
The deal is being channelled through Qatar Foundation Endowment and a source close to QFE said it would be an active investor in Bharti Airtel, securing a board seat at the world’s fourth-biggest mobile phone company by customers.
“QFE is in for the long-term,” the source said, speaking on condition of anonymity.
The purchase by QFE — an investment vehicle of the Qatar Foundation — pushes India ahead of China to top Asia’s inbound league table for mergers and acquisitions this year.
According to Thomson Reuters data, India’s inbound M&A now totals $9.83bn so far this year, compared with China’s $7.7bn and Australia’s $6.9bn.
Qatar’s first major investment in a listed Indian company provides Bharti Airtel with much-needed capital that strengthens its balance sheet and future growth.
Bharti’s profit has fallen for three years in a row, hit by fierce competition in its main Indian market, and also dragged down by losses at its African operations, which it bought in 2010 from Kuwait’s Zain for $9bn.
Controlled by billionaire Sunil Mittal and also nearly a third owned by Southeast Asia’s top phone carrier SingTel , Bharti had $11.7bn of net debt, or about 2.5 times its operating profit, as of end-March. It operates in 20 Asian and African countries and has about 260 million mobile phone customers.
The investment by QFE, a recently-established arm of the Qatar Foundation, is in line with state’s strategy of picking minority stakes in large global companies such as Royal Dutch Shell, Tiffany & Co and Siemens.
Those deals were made through Qatar Holding, the investment arm of the state sovereign wealth fund, which has emerged as one of the world’s most prolific investors with stakes in companies such as London miner Glencore Xstrata and Swiss banking giant Credit Suisse.
Bankers close to the sovereign fund say it has an appetite for $30-$40bn in global investments annually.
Separately, the non profit Qatar Foundation has a main mandate of developing the state’s human capital and a knowledge-based economy, although it still owns commercial-looking investments such as telecoms firm Vodafone Qatar.
As part of the deal Bharti will issue 199.9 million new shares at `340 each, a 7.3 percent premium to the stock’s Thursday closing price, the company said yesterday.
The telco’s shares closed 0.3 percent higher on Mumbais’s National Stock Exchange, having risen as much as 4.7 percent in early trade. The stock has fallen 4 percent in the last three months.
The deal “should help ease the debt burden and improve investor confidence”, said Karan Mittal, a telecommunications analyst at ICICI Direct in Mumbai.
Bharti, which recently raised $1.5bn in overseas bonds, has an option to sell shares its majority-owned telecoms infrastructure unit Bharti Infratel.
Bharti Airtel did not sell any shares when this unit went public last December.
It is also looking to sell up to a quarter of its satellite television services arm, sources said in March. Goldman Sachs advised Qatar Foundation Endowment on the Bharti deal.
According to analysts, the deal will certainly be a big positive for Bharti Airtel which is weighed down by huge pile of debt and any capital infusion will help the telecom major to pare down its debt to equity ratio.
“After the Qatar Foundation Endowment deal, the capital structure will definitely improve to some extent. They have got pretty substantial debt on their balance sheet,” said Harit Shah, Analyst at Nirmal Bang.
“So the event is actually a positive for the stock but having said that fundamentally, the overall outlook is still relatively muted,” he added.
Shah is of the view that the deal is positive from a balance sheet capital structure point of view.
Analysts peg the recovery in stock price of Bharti Airtel to happen around FY15, supported by growth in volumes and ARPMs.
Analysts on an average are of the view that the future prospects of telecom major remain cloudy as it stares at payouts in the form of regulatory fees and spectrum charges.
Tirthankar Patnaik of Religare Capital Markets Ltd is of the view that the deal with Qatar Foundation Endowment is fairly positive for the stock.
“However, the turnaround in the stock can only likely to happen now in FY14-FY15 led by volume growth and we also expect ARPMs to go up,” he added.
Reuters & Agencies
