The year 2021 seemed to have started on a positive note for the telecom sector in terms of the financial aspect. Both Reliance Jio and Bharti Airtel kick-started the year by reporting a strong financial performance during the first quarter of financial year 2022. While Jio recorded a 44.9 per cent year-on-year growth in net profits during the quarter ended June 2021, Airtel managed to turn around its profitability situation and recorded a net profit of Rs 2.84 billion during the quarter under consideration, compared to a loss of Rs 159.33 billion a year ago. The consecutive quarters also witnessed rising profits for the two telcos.
Another significant development was the launch of the telecom reform package to address the industry’s long-standing issues, including high levies and charges, clarity on the definition of adjusted gross revenue (AGR) and liquidity challenges faced by telcos. As part of the package, the government allowed a four-year moratorium on outstanding AGR dues, a move that proved to be beneficial for Vodafone Idea Limited (Vi) in particular.
Among telcos, Airtel raised funds through the first tranche of its rights issue and the issuance of dual-tranche US dollar bonds. Reliance Jio’s tower arm, Summit Digitel Infrastructure also raised funds through offshore bonds. However, Vi’s fundraising plans did not bear fruit during the year.
Meanwhile, the digital infrastructure space witnessed several heavyweight merger and acquisition (M&A) deals during the year: Panatone Finvest Limited acquiring a major stake in Tejas Networks; Nettle Infrastructure Investments, a wholly owned arm of Airtel, acquiring a 100 per cent stake in OneWeb India; the Partners Group acquiring stake of about 75 per cent in ACT Fibernet; and iBus Networks acquiring Ubico Networks.
tele.net takes a look at the key financing deals and activities in the Indian telecom sector during 2021…
Fundraising activity
Airtel raises funds through rights issue and issuance of dual-tranche US dollar bonds
During 2021, Bharti Airtel raised funds under the first tranche of its Rs 210 billion rights issue, as well as through the issuance of its first ever dual-tranche US dollar bond offering. Under the rights issue, Airtel raised Rs 52.46 billion under the first tranche. It opened for subscription on October 5, 2021 and closed on October 21, 2021. The issue was subscribed approximately 1.44 times.
Through the issuance of dual-tranche US dollar bonds, Airtel raised $1.25 billion spread across senior notes and perpetual bonds. Airtel raised $750 million through 10.25-year senior bonds at a yield of US 10-year treasury plus 187.5 basis points for an implied coupon rate of 3.25 per cent. Further, Airtel’s wholly owned subsidiary, Network i2i Limited, also raised $500 million in guaranteed subordinated perpetual NC 5.25-year bonds with a 3.975 per cent coupon during 2021. As per industry analysts, this was the lowest ever yield on 10-year and perpetual bonds for Bharti Airtel.
Bharti Telecom, Airtel’s parent company, receives Rs 13.8 billion as investment in bonds
Bharti Telecom, Airtel’s parent company, reportedly received Rs 13.8 billion as investments in the form of bonds from leading fund houses. Kotak Mutual Fund and Aditya Birla Sun Life Mutual Fund made the maximum investment of Rs 3 billion each. Nippon Life Mutual Fund invested Rs 2.45 billion, HDFC Short Term Debt Fund and Axis Mutual Fund invested Rs 1.5 billion each, and ICICI Prudential Mutual Fund invested Rs 1 billion. In addition, PNB Gilts and Reliance General Insurance subscribed to bonds worth Rs 850 million and Rs 500 million respectively.
Bharti-backed OneWeb undertakes fundraising
Bharti Global and the UK government-owned satellite communications provider OneWeb also raised funds during the year. In January 2021, the SoftBank Group and Hughes Network Systems LLC invested a collective amount of $260 million in the company, bringing its total funding to $1.4 billion. Later, in April 2021, OneWeb raised $550 million by selling a 24 per cent stake to French satellite operator Eutelsat Communications, taking its total funding amount to $1.9 billion. In June 2021, Bharti Global, the overseas arm of Bharti Enterprises, invested an additional $500 million in OneWeb by way of exercising a call option. On completion of the investment, Bharti Global’s overall investment in OneWeb would rise to $1 billion, and it will hold a 38.6 per cent stake in the satellite company while the UK government, Eutelsat and SoftBank will own 19.3 per cent each. With the investment, OneWeb has secured a total of $2.4 billion as equity investment, with no issued debt.
Summit Digitel raises $500 million through offshore bonds
In August 2021, Summit Digitel Infrastructure, which supports Reliance Jio’s telecom towers, raised $500 million via overseas bonds that had been opened for subscription. The bonds, which have a 10-year maturity, were finally priced after adding 187.5 basis points over the US treasury benchmark of 215 basis points. This was Summit Digitel’s first issuance in the international bond market. Bank of America, Barclays Citigroup and HSBC helped the company raise the funds. In addition to capital expenditure, the proceeds will go towards paying off the company’s high-cost debt.
RailTel raises Rs 2.44 billion from 14 anchor investors
In February 2021, the RailTel Corporation of India raised Rs 2.44 billion from 14 anchor investors ahead of the launch of its initial public offering (IPO). According to the company, it allocated 25,957,446 equity shares at Rs 94 per share to anchor investors, including five foreign portfolio investors and six mutual funds.
HFCL raises Rs 6 billion through QIP issue
In December 2021, Himachal Futuristic Communications Limited (HFCL) raised Rs 6 billion via a qualified institutional placement (QIP) issue. The QIP proceeds shall be predominantly utilised towards funding of capital expenditure requirements for setting up of new manufacturing facilities, capacity expansion, and expenditure on research and development and product development. Earlier, the company’s board of directors had passed an enabling resolution to raise Rs 7.5 billion by way of private placement/preferential issue/public issue/rights issue/qualified institutional placement or through any other permissible mode and/or combination thereof, in their annual general meeting held in September 2021.
Mergers, acquisitions and stake sales
Government exits Tata Communications
As a part of its divestment plan, the government exited Tata Communications by selling a stake of about 26 per cent in the company for Rs 88.46 billion. While the government sold a 16.12 per cent stake through an offer for sale to retail and non-retail investors for Rs 54.57 billion, another 10 per cent stake was sold to Panatone Finvest, a unit of Tata Sons, for Rs 33.89 billion. The Tata Group’s holding in Tata Communications now stands at 58.87 per cent.
Acquisitions and stake sales by Airtel subsidiaries
During the year, Nettle Infrastructure Investments, a wholly owned arm of Bharti Airtel, acquired a 100 per cent stake in OneWeb India Communications Private Limited in an all-cash deal for an undisclosed sum. OneWeb India Communications is a subsidiary of the UK-based low earth orbit satellite communications operator OneWeb, co-owned by Bharti Global and the UK government.
Another Airtel subsidiary, Airtel Digital Limited purchased a 10 per cent stake in the Tata Group’s Ferbine Private Limited for Rs 500 billion. With this investment, Airtel will own a stake in the pan-Indian umbrella entity that has been formed to provide competition to the National Payments Council of India.
Further, Kotak Mahindra Bank completed the sale process of a stake of over 8 per cent in Airtel Payments Bank to Bharti Enterprises for Rs 2.94 billion. Earlier, Kotak Mahindra Bank had announced that it had executed a share purchase agreement for divestment of 200 million equity shares held by the bank in Airtel Payments Bank Limited, for a cash consideration of Rs 2.94 billion or higher.
Deals in the digital infrastructure space
In July 2021, Tejas Networks executed definitive agreements with Panatone Finvest Limited, a subsidiary of Tata Sons, for the latter’s acquisition of a controlling stake in Tejas. The deal had multiple components, including a preferential allotment of 19.4 million equity shares at a price of Rs 258 per share, aggregating Rs 5 billion. Under the agreement, Panatone would acquire up to 40.3 million equity shares of Tejas, representing a stake of around 26 per cent, for around Rs 10.38 billion.
In another key development, the Partners Group acquired a stake of about 75 per cent in India’s Atria Convergence Technologies (ACT) from its investors, True North and TA Associates. The Partners Group will pay around $900 million for the 75 per cent stake. With this, True North’s investment arm, Argan, will exit its entire shareholding in ACT, while TA will partially divest its shareholding. Upon completion of the transaction, Partners will hold a 75 per cent stake, TA will hold about 20 per cent, and the rest of the stake will be held by the management.
Further, iBus Networks and Infrastructure Limited acquired Ubico Networks from the Shyam Group in an all-cash deal. As per the agreement, the iBus Group acquired a 100 per cent stake in Ubico Networks, its in-building and in-campus neutral-host infrastructure business, and all related assets, for around Rs 1 billion. Ubico’s founders have completely exited the company, while 33 employees of Ubico will be joining iBus. Earlier, iBus had raised $21 million from the Morgan Stanley India Infrastructure Fund for inorganic expansion and technology development of the platform.
Meanwhile, Polycab India Limited signed an agreement to acquire 100 per cent stake in Silvan Innovation Labs Private Limited, a Bengaluru-based technology company focused on providing automation offerings. The deal involves the purchase of Rs 102 million worth of shares by Polycab and the infusion of about Rs 80 million as additional funds to discharge certain outstanding liabilities of the acquired company. Post the acquisition, Silvan will operate as a wholly owned subsidiary of Polycab.
FPOs/IPOs
In February 2021, the RailTel Corporation launched its IPO, which was subscribed 42.39 times on the final day of the subscription. As per data from the National Stock Exchange, the Rs 8.19 billion offer received bids for 2.59 billion shares against the 0.061 billion shares on offer. While the portion reserved for retail investors was subscribed 16.78 times, the qualified institutional buyer category was subscribed 65.14 times and the non-institutional investor category was subscribed 73.25 times. The public issue was of 0.087 billion equity shares, and had a price range of Rs 93-Rs 94 per share. Further, the Rs 183 billion IPO of Paytm closed on November 10, 2021, and was subscribed nearly twice the offer size. As per Bombay Stock Exchange data, the retail part was subscribed 1.7 times, the institutional part 2.8 times, and the part reserved for high net worth investors was subscribed by just 24 per cent. In its anchor round, the company had raised Rs 82.35 billion.
Moreover, a number of companies started the process of launching their IPOs during 2021. In this regard, MobiKwik received approval from the Securities and Exchange Board of India (SEBI) to launch its IPO. The company plans to raise Rs 19 billion through the IPO. Further, Lava International filed the draft red herring prospectus (DRHP) with SEBI to raise Rs 14 billion-Rs 15 billion through an IPO. The IPO will comprise a fresh issue of equity shares worth Rs 5 billion and an offer for sale of over 43.7 million shares. Asianet Satellite Communications Limited also filed preliminary papers with SEBI to raise Rs 7.65 billion through an IPO. According to the DRHP, the IPO consists of a fresh issue of equity shares aggregating to Rs 3 billion, and an offer for sale of up Rs 4.65 billion from Hathway Investments. Bharat FIH Limited, too, filed the DRHP with SEBI. Bharat FIH, previously known as Rising Stars India, provides manufacturing and assembly services for Xiaomi’s mobile phones in India. The IPO will consist of a fresh issue of up to 25.02 billion shares and an offer for sale of a similar quantity by the promoter group and Wonderful Stars (a Foxconn unit).
Outlook for 2022
The year 2022 seems to be power-packed for the telecom sector. For one, the year has brought back hopes of financial revival for Vi, as its board recently opted to convert pending spectrum and AGR dues into government equity. With this, the government has become the single largest shareholder, holding around 35.8 per cent shares in the company. Analysts perceive the move to be a positive one that can help the telco raise funds and brighten its prospects for long-term survival. In fact, Vi has recently raised Rs 50 billion as a short-term loan from banks.
Meanwhile, Reliance Jio too is gearing up to make the most of 2022 and is reportedly considering launching an IPO for an enterprise value of approximately $100 billion. On the other hand, Airtel has completed its merger with Hughes Communications and has formed a joint venture to offer satellite broadband services in the country. Moreover, 2022 is also set to usher in higher overall sector revenue growth, owing to the recent prepaid tariff hikes initiated by telcos and rising 4G data adoption.
Kuhu Singh Abbhi
