Bloomberg News

Bharti May Raise $1 Billion From Bond Sale to Pare Debt Costs

November 04, 2011

Nov. 4 (Bloomberg) -- Bharti Airtel Ltd., India’s largest mobile-phone operator, said it may raise as much as $1 billion from an overseas bond sale to pare borrowing costs after reporting its lowest quarterly profit in more than four years.

Bharti “would look to raise $750 million to $1 billion” from the bond issue, Group Chief Financial Officer Manik Jhangiani said today at an earnings briefing. The company, based in New Delhi, may start the sale once market conditions improve, he said.

Bharti, which bid 156 billion rupees ($3.2 billion) last year at auctions of airwaves to offer faster wireless services, has started writing off the amount it spent on the spectrum and is paying higher interest on borrowings used to fund expansion. The phone carrier controlled by billionaire Sunil Mittal today reported a 38 percent drop in profit, missing analyst estimates for a fifth straight quarter, as costs stemming from purchases of airwaves for third-generation services offset higher sales.

“They were trying to replace their high-priced existing debt they took for 3G spectrum, with lower-priced debt,” said Nitin Soni, an analyst at Fitch Ratings India Pvt. in New Delhi. “They’re on the road -- it all depends on how the market will improve.”

Bharti rose 0.6 percent to 395.70 rupees as of 1:45 p.m. in Mumbai trading, compared with a 0.3 percent advance by the benchmark Sensitive Index, or Sensex. The stock has gained 10 percent this year compared with the Sensex’s 14 percent drop. Reliance Communications Ltd., India’s second-ranked mobile-phone company by subscribers, has declined 43 percent this year.

Syndicated Loan

Bharti had in June planned meetings with bond investors in Asia, Europe and the U.S., a person familiar with the matter said at the time. The wireless carrier last year raised 88 billion rupees from a six-year syndicated loan to pay for the spectrum for offering third-generation mobile-phone services.

Barclays Plc, Deutsche Bank AG, HSBC Holdings Plc, Standard Chartered Plc and UBS AG were arranging meetings, the person, who asked not to be identified because the details were private, said in June.

“The rollout of 3G has resulted in higher amortization costs” with an impact of 1.64 billion rupees, Bharti said in a statement today. Net interest costs also increased by 1.2 billion rupees, the company said.

Net income fell to 10.3 billion rupees in the three months ended Sept. 30, from 16.6 billion rupees a year earlier, Bharti said. Profit missed the 13.1 billion-rupee median of 25 analysts’ estimates compiled by Bloomberg. Revenue rose 13 percent to 172.7 billion rupees. That compared with the 174 billion-rupee median of 27 analysts’ estimates.

‘Benefit the Most’

“The results aren’t encouraging, but the stock is getting support from the optimism surrounding the new telecom recommendations,” Deven Choksey, managing director of K.R. Choksey Shares and Securities Pvt. in Mumbai, said by phone. “Being the largest player, they will benefit the most from any consolidation in the industry.”

India’s government aims to ease rules for mergers and acquisitions among mobile-phone service providers under a new policy it plans to adopt by next month, according to R. Chandrashekhar, secretary for telecommunications. The Department of Telecommunications plans to have the new regulations, which also will fix a mechanism for pricing wireless airwaves, approved by the cabinet by Dec. 31, Chandrashekhar said in an interview yesterday.

Trigger Consolidation

The rule changes may trigger consolidation in a market where 15 mobile phone companies -- including Bharti and the local ventures of Vodafone Group Plc, Telenor ASA and NTT DoCoMo Inc. -- compete for subscribers, pushing call charges to one U.S. cent a minute. India’s wireless market is forecast by research firm Gartner Inc. to surpass 872 million active users by the end of 2015, compared with 609 million in August.

Second-quarter earnings before interest, tax, depreciation and amortization, or EBITDA, climbed 13 percent to 58.2 billion rupees, Bharti said. Total customers served by the company across its markets in South Asia and Africa rose to 237 million, from 194.8 million a year earlier, the company said.

“India has achieved double digit growth fueled by non voice businesses,” Chairman Mittal said in the statement. “The arrest of continuously declining prices in India augurs well for the telecom industry.”

In July, Bharti led Indian operators including Vodafone’s local unit and Idea Cellular Ltd. in raising call rates for the first time in more than two years, reversing the decline in tariffs since the entry of overseas players NTT DoCoMo and Telenor. Bharti also started third-generation wireless services this year in a bid to draw subscribers with features like streaming video and faster music downloads.

‘Hyper-Competition’

“The hyper-competition that was there earlier seems to be going down,” said Abbas Merchant, an analyst at Jaypee Capital Services Ltd. in Mumbai. “Average revenue per minute seems to be stabilizing now,” said Merchant who rates Bharti “buy.”

Average revenue per minute customers spent on Bharti’s network in India, a key metric of performance in the telecommunications industry, rose to 0.432 rupee last quarter from 0.428 rupee in the preceding three months, Bharti said.

The carrier will start its fourth-generation wireless operations in four markets in India this year, Chief Executive Officer South Asia & India Sanjay Kapoor said today. The 4G network will be based on the TD-LTE technology, he said.

--With assistance from Shikhar Balwani in Mumbai. Editors: Suresh Seshadri, Arijit Ghosh

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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