Facing liquidity crunch, Bharti Airtel board has cleared the proposal to raise Rs 21,000 crore by way of the rights issue at a price of Rs 535 per share. The move is expected to strengthen Airtel's competitive positioning in the market and provide the telco with the necessary capital for an aggressive 5G rollout.
The capital raising announcement, though unexpected and surprising, would also enable Airtel to enhance its market share and provide the wherewithal to make faster investments in a scenario India moves to a two-player market earlier than expected.
Meanwhile, the rights entitlement ratio entails one equity share for every 14 equity shares held by eligible shareholders as on the record date (to be notified later). The promoter and promoter group of the company would collectively subscribe to the full extent of their aggregate rights entitlement. The company has informed that they will also subscribe to any unsubscribed shares in the issue.
Promoter holding in the company stands at about 55.8%, while the public holds 44.09%. Reliance Jio's stronger balance sheet, impending 5G spectrum auction and related capex may have prompted Airtel to raise funds and is seen ‘positively'.
The fund raised by Airtel although ‘was not necessary at this juncture, but it does provide Bharti with the necessary ammunition in case of aggressive 5G rollout, the report mentioned.
“Despite 3x net-debt to EBITDA, Bharti's balance sheet was well funded, considering rising EBITDA due to market share gains and FCF (free Cash flow) generation. Reliance Jio's (RJio's) stronger balance sheet, impending 5G spectrum auction and related capex may have prompted Bharti to raise funds and we see it positively,” Edelweiss report said.
The increased cash would also help Bharti to further increase its market share as it would be able to invest in its network/branding and distribution, BofA Securities report said, adding, Airtel should also be able to fortify its 5G spectrum in the upcoming auction.