Bharti Airtel Rights Issue

Bharti Airtel announced on August 29, 2021, that its Board of Directors has approved to raise capital to Rs. 21,000 crore by issuing equity shares. Should Airtel Investor subscribe for these right issues? What are these Right Issues, What are their effects, Why Airtel is coming up with Rights issues? Get an answer to all these questions in this short article.

Introduction:

Bharti Airtel shares rose more than 5% intraday today reacting to the company's announcement of a rights issue. On August 29, 2021, Airtel's board approved raising to Rs.21,000 Cr by way of the rights issue at Rs.535 per share, at an almost 10% discount to Friday’s closing price.

What is a Rights Issue?

• The rights issue is particularly related to equity shareholders.
• It is an invitation to existing shareholders to purchase additional new shares in the company.
• Here, the Company gives its existing shareholders the right but not the obligation to subscribe to newly issued shares in proportion to their existing holdings, at a discount to the current market price.
• Used for raising equity funds when a company need additional capital

Effect of Rights issue on the company and the existing shareholders:

• Rights issue affects two important elements of a company the first one is Equity Capital where the equity bases rise to the extent of the issue.
• The Second Effect is on Market Capitalisation wherein Market perception is positive because of the VI’s viability concerns and the demand outlook is positive in terms of 5G, network expansion, and new digital services. The diluting effect of the same is that EPS gets diluted.

Bharti Airtel-Right Issue:

• Bharti Airtel announced on August 29 that its Board of Directors has approved to raise capital to Rs. 21,000 crore by issuing equity shares of the face value of Rs 5 each of the company.
• 1 equity share for every 14 equity shares held by eligible shareholders as on the record date.
• The telco board of directors also constituted a 'special committee of directors to decide the other terms and conditions of the issue including issue period and the record date.
• The promoter and promoter group will collectively subscribe to the full extent of their aggregate rights entitlement. In addition, they will also subscribe to any unsubscribed shares in the issue.

Bharti Airtel-Right Issue:

• The right issue price is to be set at 535 per fully paid-up equity share, including a premium of Rs. 530 per equity share. The Previous Closing Share Price was Rs. 593 as of August 27, 2021.
• The Rights Issue Price is set at Rs. 535 per share at a discount of 10% to the previous closing share price.
• The Rights Entitlement Ratio stands at 1:14 for 1 share for every 14 shares held.
• Subscribers need to pay 25% on application and the balance in two more additional calls as may be decided by the Board/ Committee of the Board from time to time based on the Company’s requirements within an overall time-horizon of 36 months.

Bharti Airtel Rights Issue - Fundraising Effects:

• 3 Key Purposes of Capital Raise via Rights Issue

i) CAPEX Plans: Free up cash to expand and deepen its 4G network, and also get ready for the 5G auctions.

ii) Debt Repayment: Net Debt is Rs 1.6 Lakh Crore as of June 21

iii) AGR Dues Repayment: Rs. 4,100 Cr by March 2022, Spectrum fee payments Rs.8,500 Cr in FY23

• The Current Equity Capital of the company is Rs. 59,203 Cr. Post-Right Issue in the Entitlement Ratio of 1:14, the Equity Capital will be then Rs. 63,432 Cr.
• The Current Net Debt of Airtel is Rs. 1.59 Lakh Cr. and the Current Net Debt to Equity Ratio stands at 2.7x.
• Post this Rights Issue, the New Debt to Equity Ratio will be 2.5x.
• Currently, the Promoters hold a 55.86% stake in the company and if Minority Shareholders like Institutional Investors do not participate in this Rights Issue then there can be an increase in the promoter’s shareholding.

Debt Trend of Airtel:

• Bharti Airtel is currently having huge debt of around Rs. 1.60 Lakh Cr. as of June 2021.
• The Debt Trend of Bharti Airtel is in an upward direction. The Debt of the company was Rs. 1.22 Lakh Cr. in June 2020 which has gone up to 1.47 Lakh Cr. in December 2020, and 1.49 Lakh Cr. in March 2021.

Debt Trend-Airtel 

Conclusion:

Telecom business being capital intensive, fundraising is a clear sign of expansion mode for Airtel. Vodafone Idea’s viability concerns will also benefit Airtel and Jio. Those investors who believe in growth in the Telecom Sector of the country and this expansion & growth strategy of Bharti Airtel, then a shareholder of Airtel can subscribe for this Right Issue. Do consult a financial advisor before making any investment decision.