Airtel Might Raise US$ 1 billion in Overseas to Expand its 4G Network

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Experts suggest that Indian firms prefer loans from international banks due to more capital and chances of business relations with foreign firms

Bharti Airtel, Reliance Jio, Airtel 4G, Mukesh Ambani, Jio, Reliance Jio Infocomm
Image courtesy: Flicker.com

India’s current largest telecom company Bharti Airtel has announced that it might plan to raise US$ 1 billion (Rs 6,900 crore) in overseas through loans to refinance its high-cost debts that it would in return help them to have the cash for capex investments required to expand its 4G network in the country. This move is seen as one to take on Reliance Jio and the conditionally approved Vodafone-Idea merger.

Debts have increased to Rs 95,000 crore till March 2018

According to reports, Airtel’s debt in last year, till March 2017, was Rs 91,000 crore but the telco giant has seen a soar in debt charges to over Rs 95,000 crore in March 2018. Now, the company is aiming to spend Rs 24,000 crore as capex in the current fiscal year (April 2018 to March 2019). Besides, it might also raise two-three year money, which will be priced after the addition of a markup or spread over by the London Inter-Bank Offered Rate (LIBOR), which is a benchmark gauge, reported by The People.

Sunil Mittal, Airtel’s founder and chairman, said that the company is currently in talks with investment bankers to raise the syndicated loan in the next one month or two. At least five to six banks are most likely to arrange the offshore credit for the telco major that is currently engaged in a feud for subscribers with moneyed Reliance Jio. “The company may be able to raise the money by August. It makes sense for the company to go for an overseas syndicated loan,” an individual familiar with the matter stated.

Telco giants are opting for syndicated bank loans, say experts

Industry experts have said that companies in the current year are avoiding the dollar-bond market due to a rise in US Treasury fields, which has helped to increase the borrowing expenses. Last year, the US Treasury benchmark yield experienced a spike of 50 basis points to 2.87 per cent now.

Bharti Airtel has raised more than Rs 14,000 crore through stake sales in its tower and DTH units over the last year. Also, another US$ 6.2 billion was raised through overseas and local bond issuances over the past few years. However, besides the Rs 95,000 crore debt, Airtel’s earnings before interest, tax, depreciation and amortisation (Ebitda), has also gone down by 12 per cent in the same time (March 2018) thereby increasing the net debt to Ebitda by 0.6 per cent from 2.63 a year ago to 3.23 now. Gopal Vittal, Airtel India CEO, had recently stated that there is a cyclical occurrence of regular financing. Even so the debts, Airtel has maintained that the debt to Ebitda ratio is “comfortable”

“There is a lot of capital available in loan form from international banks who have interest in India. It helps builds business relations with Indian corporates,” said the head of a foreign bank on anonymity. This will be the first time in many years that Airtel will be trying to access syndicated overseas loans.

Vodafone-Idea merger & Reliance Jio are also in the fund-raising game

Airtel’s arch-rival, Reliance Jio is also in the fund-raising process as it recently signed a US$ 1 billion (Rs 6,800 crore) loan facility with Korean Trade Insurance – only weeks after it raised Rs 2,500 crore by selling its domestic corporate bonds. As far as syndicated loans are concerned, Jio recently raised US$ 500 million through a syndicated Samurai loan from three Japanese banks as well.

On the other hand, Vodafone and Idea, following their merger, are most likely to join this game too. The merger that will dethrone Airtel as the largest telecom company in India is also expected to enhance its revenue and profitability to invest and expand the 4G network that has proved to be the key factor in this fierce competition among the telcos.

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