India’s largest telco is eyeing two deals to reduce its high debt levels
After being pushed into a corner by new entrant
As most price wars go, Airtel has no choice but to match Reliance Jio’s prices and heavy spending. The
The spending has affected Airtel’s bottom line. It recently reported the first quarterly loss from its Indian operations in 15 years, following eight consecutive quarters of profit drops.
Going forward, Airtel will need to maintain its solvency and cut down it’s debt. This is why it’s planning two important transactions, both of which could reduce its total debt by $4.6 billion by 2021.
First, it is looking to raise $1.5 billion by selling a 25% stake in its profitable
The deals, and the subsequent debt reduction, will help Airtel prevent a downgrade in its investment ratings. The lower the firm’s rating, the more expensive it becomes for it to borrow money or issue debt. In essence, it needs to reduce debt now in order to make its future debt cheaper to service.
And why does Airtel’s debt reduction plan matter to consumers?
The only reason subscribers have been able to benefit from low mobile subscription prices is because of the intense competition in the telecom sector. Airtel, Vodafone-Idea and Reliance Jio are all trying to undercut each other. However, if either of Reliance Jio’s competitors were to fall out of the race due to insolvency or unprofitability, it would give the disruptor greater control of the industry and subsequently, the power to increase prices. Airtel is by far the best competitor Jio has in the country.