Airtel’s Africa business valued at $6.6billion

Bharti Airtel’s Africa business is being valued at $6.6billion even as the Sunil Mittal-led telco’s international holding company for Africa operations explores an initial public offer (IPO) to dilute a minority stake, analysts said.

Bharti Airtel, they said, is likely to list its Netherlands-based subsidiary in a broad international exchange such as Nasdaq, Luxembourg Stock Exchange, Euronext Amsterdam or the London Stock Exchange by zeroing in on a neutral country where capital markets and banking systems are well established and financial regulations are not archaic.

Bank of America-Merrill Lynch values “Bharti’s Africa business at six times Ebitda, leading to an estimated enterprise valuation of $6.6billion by FY19.” The US brokerage pegs Bharti Africa’s equity valuation at $1.1billion after factoring in an estimated $5.5billion net debt.

Bharti Airtel had last Wednesday, said that the Board of Directors of its wholly owned arm Bharti Airtel International (Netherlands) BV (BAIN BV), had authorised its management to initiate non-binding exploratory talks with banks/intermediaries to evaluate the possibility of listing its shares on an internationally recognised stock exchange. BAIN BV is also the global holding company of Bharti’s telecom operations in 14 African markets.

In Nigeria, Airtel is still the third largest telecommunications firm with over 35 million customers, which is 25.3 per cent market share. In December, Airtel gained 911, 040 new Internet users, amounting to 23, 985.203 users against 23, 074 users in November 2017.

Bharti Airtel’s third quarter (Q3) 2017 report, showed that it had over 394.2 million customers in India, South Asia and Africa at the end of December, across its mobile, enterprise, home broadband and DTH businesses

Meanwhile, the U.S. brokerage, however, expects “Bharti to remain the majority shareholder in Africa even after a potential listing,” as it would lead to consolidation of the Africa business in the company’s Indian numbers.

Bharti did not offer comment to ET’s queries on the valuation of its Africa business, its preferred international bourse for listing BAIN BV or the possible extent of stake dilution.

Bharti Airtel had recently showcased its Africa business and strategies to further turn around the asset during an analyst meet in Uganda. Airtel has been performing well in Africa, having reported a $76million profit in the December quarter, compared with a loss of $93million a year earlier, helped by a surge in data traffic and Airtel Money transactions.

Brokerage BNP Paribas said Bharti’s plans to separately list Airtel Africa made strategic sense, as it would “provide visibility on its valuation and could also help Airtel deleverage its balance sheet.”

Bharti Airtel shares dipped 1.15 per cent, to close at 429.20 on BSE last Wednesday.

Analysts, however, said post-listing of the Africa business, Bharti Airtel could adopt a similar strategy that it has for its listed tower unit, Bharti Infratel. As such, it could progressively cut its stake in the Africa business and invest the proceeds in the core India mobile business, which has significant growth potential, but would require high network investments in the short term to counter Jio and Vodafone-Idea.

Brokerage PhillipCapital said listing the Africa operations would provide Bharti with “significant ammunition” to fight price wars in India. Bharti’s ability to monetise its Africa operations, it said, would not only provide a big war chest, but also send a signal to competition about its ability to sustain low tariffs for longer periods.

“Bharti is already looking at selling Bharti Infratel, and might do the same for its Africa operations, clearly showing its huge stack to its Indian competitors and its willingness to go all-in for its India wireless operations,” PhillipCapital said in a note seen by ET.

Bharti Airtel has been raising funds by progressively reducing its stake in Bharti Infratel to cut debt and free up cash and gird up for competition from Jio.

Over the past year or so, it has raised nearly Rs 12,089 crore through multiple minor stake dilutions in its tower arm, and the company recently indicated it may sell a much larger stake in Infratel than it has sold till now to finance its aggressive funding needs to bolster 4G networks. Bharti Airtel and its wholly-owned arms own 53.51 per cent in Bharti Infratel.

The telecom industry is already plagued by brutal price competition and debt upwards of Rs 7 lakh-crore, and market leader Bharti Airtel has seen its revenue and profits fall sharply in the past quarters, hit by fierce price wars at home since Reliance Jio’s entry in September 2016. Jio’s renewed aggression on the pricing front after it cut rates twice last month in quick succession has once again stoked fears of another prolonged price war resulting in further erosion of telco profits for several quarters.

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