Bharti Airtel Ltd’s tower subsidiary, Bharti Infratel, has filed its draft red herring prospectus for its public issue that would see part exits by financial investors including Singapore’s sovereign wealth fund Temasek, Goldman Sachs and Japanese financial services group Nomura.
The IPO would involve fresh issue of 146.2 million shares besides an offer for sale of 42.6 million shares by four investors including the three mentioned above. The parentage of the fourth investor selling its shares, Anadale, could not be immediately ascertained.
As per the DRHP, the company is looking to raise over Rs 2,940 crore through a fresh issue of shares, which would be used for upgradation and replacement of existing towers, installation of 4,813 new towers, besides green initiatives at tower sites. Given this, the company is looking at an issue price of at least Rs 200 a share.
As per VCCircle estimates, the average cost of acquisition of shares for the selling shareholders is pegged around Rs 220 a share. The IPO issue price may be fixed above this to give a positive return to the investors.
Notably, the last equity issue (through conversion of compulsory convertible debentures) was done in March 2010, which, after accounting for bonus issue last month, works out to have an effective price of Rs 263 a share.
If the IPO is done at this price the total issue size would be around Rs 5,000 crore or $900 million. Several media reports have been hinting at a similar issue size, which would give Temasek, Goldman Sachs and others return of around 20 per cent on their over four-year old investment.
Bharti Airtel, which holds 86 per cent of the tower arm, is not selling any shares and would own around 79.4 per cent stake of the company post issue. This is surprising as the company would need to bring down its holding to sub 75 per cent level by June 2013 as per listing norms and that would mean it is already thinking of a post issue stake sale or further issue to dilute its holding.
The issue would comprise around 10 per cent of the diluted capital base and if Rs 263 is indeed the issue price, then the firm is looking at a valuation of around Rs 50,000 crore or around $9 billion.
Bharti Infratel also has 42 per cent stake in another tower company Indus, in which Vodafone holds another 42 per cent and Aditya Birla Telecom owns the rest 16 per cent.
As of June 30, Bharti Infratel owned and operated 33,446 towers in 11 telecom circles, while Indus operated 109,539 towers in 15 Circles. With Bharti Infratel’s towers and its equity interest in Indus, it has an economic interest in the equivalent of 79,452 towers in India as of June 30. This means the issue may value each tower at Rs 62.9 lakh (incorporating its holding in Indus’ towers).
The company clocked total income of Rs 9,597 crore with EBITDA of Rs 3,684 crore and net profit of Rs 750 crore. At Rs 50,000 crore valuation, the company would be eyeing multiple of 13.5x last year’s EBITDA and 66.6x PAT. Parent company Bharti Airtel currently trades at around 23x FY12 net profit.
Bharti Airtel scrip rose 0.57 per cent to close at Rs 255.10 a share on the BSE in a strong Mumbai market on Friday. Bharti Infratel had struck a string of private equity deals at the peak of the stock market bull run, announcing fundraising of around $1.27 billion -- led by Singapore’s sovereign wealth fund Temasek (also an investor in Bharti Airtel), KKR, Investment Corporation of Dubai, Goldman Sachs, Macquarie, AIF Capital, Citigroup, India Equity Partners and Axa Private Equity.
Telecom business, as well as the telecom tower business, have not seen valuations bounce back to pre-market-crash days. As new competitors brought in price competition in the telecom business, revenue and profit growth stalled. Although most of the new telcos stand to lose their licences amid alleged multi-billion-dollar scam, it would take time for incumbents like Bharti Airtel to benefit as tariffs have budged up only marginally.
The IPO has as many as 13 investment bankers including BofA Merrill Lynch, JP Morgan, StanChart and UBS as global co-ordinators & BRLMs, Barclays, Deutsche, Enam, HSBC & Kotak as BRLMs and BNP Paribas, DBS, HDFC and I-Sec as co BRLMs.
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