The government of Singapore backs Airtel in the battle for dominance against Mukesh Ambani's Reliance Jio

Reuters

  • As a mountain of debt threatens Airtel’s survival, the company is preparing a ₹250 billion rights issue.
  • GIC Pvt Ltd, Singapore’s sovereign wealth fund, is subscribing to a fifth of the shares in the issue.
  • In addition, Singtel and Airtel’s promoters will invest ₹118 billion in the rights issue.
Bharti Airtel has burnt billions in cash, and piled on even more in debt in its fight with the world’s 13th richest man Mukesh Ambani, the owner of Reliance Jio, as the two, along with Vodafone Idea, battle to garner as much of India’s telecom market.

As the mountain of debt threatens Airtel’s survival, the company is preparing a ₹250 billion rights issue. And it’s got the support of the Singapore government. According to an exchange filing, GIC Pvt Ltd, Singapore’s sovereign wealth fund, is subscribing to a fifth of the shares in the issue.

The ₹50 billion investment will be GIC’s first in India’s competitive telecom sector. The move has precedence, given that Singapore’s largest mobile operator, Singtel, recently upped its stake in Airtel after investing ₹27 billion in the company.

In fact, both Singtel and Airtel’s promoters will invest ₹118 billion in the rights issue. After the rights issue, Singtel is expected to have a 35% stake in the company.

Earlier this month, Moody’s, an international ratings agency, downgraded Airtel’s debt to “significant credit risk” in light of the company’s over-leveraged nature an cash flow problems. At the end of December 2018, Airtel's net debt burden stood at a little over ₹1.06 trillion.

Last week, the board of Airtel approved a plan to raise ₹320 billion from capital markets, with ₹250 billion coming from the sale of shares and the remainder through the issue of foreign currency-denominated bonds.

The capital raising plan will enable India’s second-largest telecom provider to meet its capital expenditure targets, pay down debt and effectively take on Reliance Jio, which has consistently eaten into its market share and subscriber base since its launch in September 2016.

While the fundraising plan will help Airtel reduce its debt burden, it might not be enough to stabilise its credit rating, according to S&P Global, a ratings agency, due to continued capital spending amid price competition from Jio and Vodafone Idea.

However, Moody’s had a more favourable outlook on the rights issue, terming it “credit positive”.


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