Event update: Bharti Airtel (Outperformer) - Africa capital raise to help de-lever balance sheet
Event - Airtel Africa to raise USD1.25bn: Airtel Africa Ltd, a UK incorporated subsidiary of Bharti Airtel Ltd., announced that six leading global investors, Warburg Pincus, Temasek, Singtel, SoftBank Group International and others have agreed to invest USD1.25bn through a primary equity issuance in the company at a post money equity value of USD4.4bn. Singtel’s participation is USD250m in the infusion.
Valuations of the deal largely inline: The transaction implies a pre-money EV of USD8.2bn (IDFCe for Africa EV at TP is USD9.3bn). Effectively, this deal values the African entity at 7x FY20E EV/EBITDA. One could argue that this is at a slight discount to our estimate, which in our view, is due to the discount given for pre-IPO placement. The capital raise implies a dilution of about 28% at the holding company level.
Financial performance of the Africa entity has been improving: Bharti’s Africa business has seen improving performance with Rev/EBITDA of USD3.1bn/USD1.1bn (Q1FY19 annualised). EBITDA margin in this business has improved from 24% in FY17 to 36.3% with steady rise in revenue growth.
Deal will help de-leverage Bharti Airtel: Bharti Airtel has a consolidated net debt of USD15bn, of which USD5bn is Africa debt and USD6.4bn is deferred payment obligation. The proceeds of the raise will be used to reduce existing debt in the company’s Africa business. There is no share sale involved and Africa IPO should create further room to help de-lever Bharti Airtel’s balance sheet over the next 1 year.
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Even though valuation of the Africa business seems broadly in the expected range, we still see this as a positive, as it will bring in cash and help de-lever Bharti Airtel’s balance sheet. Further, the deal clearly paves the way for further Africa monetisation through an IPO. Additionally, participation of large investors, including strategic investors like Singtel provides confidence in Bharti Airtel’s ability to raise further capital if the need be. In light of the recent development, we do not see the need to change our estimates or target price; Maintain Outperformer.
Bharti Airtel provides telecommunication systems and services to individuals and businesses in India with operations in 20 countries across Asia and Africa. In India, Co.'s product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services, high speed DSL broadband, IPTV, DTH, enterprise services including national & international long distance services to carriers. In the rest of the geographies, it offers 2G, 3G wireless services and mobile commerce. Co. had nearly 287 million customers across its operations at the end of Dec 2013.
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