Thanks to investment from Qatar Foundation Endowment (QFE), Bharti Airtel has slashed its debt by around $1.1 billion at a time when financial pressure on the operator looks set to increase through a hefty regulatory fine and a spectrum auction to continue operating 2G services in the relatively lucrative ‘circles’ (regions) of Delhi and Kolkata.
Airtel, the largest mobile operator in India, announced on 3 May 2013 it had secured $1.26 billion investment from Qatar Foundation Endowment (QFE), the global investment arm of state-controlled Qatar Foundation, in exchange for a 5 per cent stake.
And by using QFE funds, Airtel has cut its debt by around a tenth. As of 31 March 2013, the operator’s net debt stood at $11.7 billion.
A strengthening of Airtel’s capital structure will be welcomed by shareholders. Not only has the Department of Telecom (DoT) recently rejected Airtel’s request for a hearing about an alleged violation of its national long distance telephone licence – which carries a fine in excess of $100 million – but DoT had earlier knocked back Airtel’s request to renew its 2G licences in Delhi and Kolkata.
The 20-year 2G licences are due to lapse in November 2014 and DoT maintains that Bharti will have to bid for them again in an open auction. It raises the prospect of more balance sheet pressure.
Airtel has been struggling of late. For the twelve months ended 31 March 2013, earnings were INR22.76 billion ($373 million), an enormous 87 per cent drop from INR42.59 billion the year before (and the smallest net profit in seven years).
Net income was a much higher INR60.47 billion during Airtel’s 2011 fiscal year.
Net profit margins have similarly been squeezed over the same period, falling from 10.2 per cent (201l) to 6 per cent (2012), then to a razor thin 2.8 per cent for 2013.
Rival Reliance Communications (Rcom), India’s third-largest operator (and carrying debt of $6.4 billion), is also making moves to strengthen its financial position. The company has announced plans to split off its property portfolio into a separate company in an attempt to unlock more value from the assets.
Rcom estimates that the long-term value of the property assets could be as much as $2 billion.