Bharti Airtel’s African market outing plan takes a curious turn

About a week ago, Bharti Airtel Ltd announced that its Africa unit had raised $1.25 billion from six global investors and that it intends to follow this up with an initial public offering (IPO). The investors, which included SoftBank Group International and Warburg Pincus, got a roughly 28% stake in Airtel Africa Ltd, which is the holding company that owns all of Airtel’s African assets.

The announcement has caused a stir back in Tanzania. The government there has warned investors buying into Airtel Africa that it doesn’t approve of any change in ownership in Airtel Tanzania. Bharti Airtel, on its part, is labouring to point out that the stake sale in the holding company doesn’t at all affect the Tanzanian government’s 40% stake in Airtel Tanzania. Besides, Airtel Africa’s effective stake in the Tanzanian operations also remains the same—all that changes is the ownership structure of the holding company, Airtel Africa.

A report in Mint suggests that the Tanzanian government’s concerns go beyond this basic confusion about the holding company structure. It has been claiming for some time that all of Airtel Tanzania belongs to the government. Be that as it may, analysts aren’t too worried about the confusion. Even if this part of the company’s African operations were left out, it wouldn’t materially change the valuation of Airtel Africa. In Tanzania, Airtel is only the number three carrier.

Meanwhile, as investors wait for the African unit’s IPO, it’s heartening that the company has managed to raise considerable equity and pare down debt. The latest fund-raise will help Bharti Airtel bring down its net debt to Ebitda (earnings before interest, tax, depreciation and amortization) ratio to 3.15 times estimated FY20 earnings, compared to a leverage of 3.4 times before the deal, analysts at Kotak Institutional Equities pointed out in a note to clients.

Compared to the highly bloated balance sheets of other Indian telcos, Bharti Airtel has done incredibly well to run a tight ship at least on this count. But analysts say it may need to loosen the purse strings a bit more in its India wireless operations, to counter the capex splurge by Reliance Jio Infocomm Ltd. “The ongoing ‘battle of capacity and capital’ in India may need Bharti to be a tad more aggressive in our view and this may need further (and larger) capital raise at the parent level,” say Kotak’s analysts.

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