Facing a furious price war at home, India’s largest telecom company Airtel is being forced to backpedal on its global ambitions
Airtelis raising $1.25 billion by issuing a minority stake in its African unit to a consortium of investors led by Warburg Pincus, ahead of an IPOof the business next year.
- The deal will be used to trim Airtel’s debt burden, which ballooned to over ₹1 trillion in the quarter ended June.
- While Airtel will get a short-term breather from its debt woes, it will continue to bleed cash at home as it tries to defend its market share from Reliance Jio.
Airtel has been on a bumpy road off-late.
A price war with newbie Reliance Jio in
And now, Airtel is forced to dial back on its international ambitions by ceding a significant stake in its profitable African business.
The company announced that a deal to sell a minority stake in its African unit had been closed on Oct. 23.The move will help the company cull its debt burden and defend its domestic market share.
The Indian telecom major said that it was raising $1.25 billion from a consortium of investors led by Warburg Pincus, Singapore’s Temasek and Japan’s Softbank Group. An IPO of the unit will also go ahead as planned in 2019, helping Airtel raise additional funds to deleverage its balance sheet.
The deal, which values the African business at $4.4 billion, will give Airtel a breather from its debt woes. Since Jio’s entry in September 2016, India’s largest telco has been forced to go on a debt-fuelled expansion plan which has involved the acquisition of spectrum, a dramatic mark-down in prices and corresponding rise in capital expenditure.
However, the cash burn will continue in the medium term as Airtel tries to match Jio’s ceaseless spending. This, coupled with the impending launch of 5G networks and the required capital investment, could sink the telco further into the debt morass.
Unfortunately, this seems to be the only way out for Airtel. It has no choice but to keep investing in its home market, where it derives a bulk of its revenue, at the cost of its international ambitions.
Backed by the might of Reliance Industries, which is India’s largest company by market cap, it seems that Jio has carte blanche when it comes to investing in expansion. It is even making moves in the broadband space.
The outcome of Airtel’s debt reduction plan has significant implications for Indian consumers. If the company were to bow out of the race to dominate the telecom market, it could spell doom for subscribers as Jio would be free to raise prices significantly.