The telecom sector in India has gone through a major upheaval over the past three years, and competition has intensified between some of the biggest players in the business. Much of it has to do with the savage price wars instigated by Reliance Industries Limited backed Jio and erstwhile dominant telecom company Bharti Airtel, which has not come out of it better. As a matter of fact, the competition is going to intensify in the future, and hence the Indian company decided to raise $4.6 billion in capital through share and bond sales. In a new development, Singapore Telecommunications Ltd, which is better known as Singtel, has announced that it is going to buy up $525 million Airtel shares.
The capital raise from Airtel is part of a larger initiative to slash debt significantly and ensure that it has the wherewithal to fight Jio in the price wars. Due to the debt burden that now stands at $15 billion, Airtel decided to conduct a rights issue to the tune of $3.6 billion. The rest of the capital is going to be raised through bonds. It is important to keep in mind that the new shares will be sold at an attractive discount of around 30%.
Singtel already holds a significant stake in Airtel, and after it buys 170 million shares for $525 million, it will further raise its holding in the company by a fair margin. Prior to this deal, Singtel held a 39.5% stake in India’s second-biggest telecom company, but once the deal is completed, it will have 35.2%. However, while announcing the deal, the Chief Executive Officer of Singtel Arthur Lang said that they are confident about their investment in Airtel. He stated, “Our participation in this rights offering … reflects our long-standing commitment to Airtel and the confidence in the future of the Indian market.”
Singtel itself has been in a bit of flux lately, and in 2018, their profits nosedived by as much as 14% in the September quarter. However, what is more important is that the company also has a net debt of $7 billion and it remains to be seen how the company’s shareholders react to this investment. The price war has been damaging but Airtel has managed to survive the war, and according to an analyst at Phillip Securities Research Pte Ltd, the price war is expected to cool in the near future. He said, “There is pricing pressure, but the wireless market in India has already undergone a long and deep consolidation from 10 to 4 operators. Reliance Jio has been burning cash aggressively to gain market share … We expect competition to rationalise.”