Bharti's rights issue credit positive but neutral for 31 pc shareholder Singtel: Moody's

Singapore, September 6 : Moody's Investors Service has said Bharti Airtel Ltd's board approval to raising fresh capital through a rights issue of up to Rs 21,000 crore is credit positive.
Bharti said on August 30 it will raise the equity with a quarter of the proceeds received upfront and the remaining in two tranches over the next three years.
Moody's said fresh capital will keep leverage relatively stable amid growing investments in 5G, ongoing cash payments for spectrum and a settlement payment related to the adjusted gross revenue (AGR) dispute with the government.
"We expect proceeds from the transaction will be used for debt repayment and capital spending, including network upgrades, 5G investments and growth initiatives such as more aggressive subscriber growth to wrest market share from India's struggling third largest operator Vodafone Idea."
Bharti's adjusted debt/EBITDA was 3.7x for the 12 months ended on June 30. Moody's said the capital raising also provides Bharti with more financial capacity to leverage its network in the Indian mobile space, as competition eases and tail winds from higher data usage and increases in average revenue per user (ARPU) benefit EBITDA and margins.
The transaction is credit neutral for Bharti's 31.7 per cent shareholder Singapore Telecommunications Ltd. Singtel can subscribe to its portion of the rights without a significant increase in leverage.
Singtel's 31.7 per cent ownership includes a direct stake of 14 per cent and indirect ownership through Bharti Telecom Ltd (BTL).
According to the terms of the rights issuance, Singtel will be required to pay 25 per cent of the total proceeds on application and the balance in two additional calls as decided by Bharti's board of directors, based on the company's requirements within a maximum period of 36 months.
Bharti's promoter group, comprising the Mittal family, Singtel and BTL, has agreed to collectively subscribe to its portion of the rights issuance and also subscribe to any unsubscribed shares in the issue.
"We expect this would be a combination of Singtel subscribing to its direct stake of 14 per cent, and BTL subscribing to 35.8 per cent of the rights through cash and new borrowings at that level.
Singtel would need to pay only about 100 million dollars as upfront payment for subscribing to rights from its direct stake in Bharti, and the remaining 300 million dollars is callable over the next 36 months.
In the event that Singtel has to make further debt-funded payments for BTL's portion of the rights, its leverage will weaken. Moody's said that has a low likelihood.