Nearly a decade-and-a-half after reaping blockbuster gains on its investment in Bharti Airtel, private equity giant Warburg Pincus is teaming up with five global investors including Temasek, Singtel and SoftBank Group International to invest $1.25 billion (Rs 9,150 crore) in the telecom major’s Africa unit.
Bharti Airtel said in a statement that the investors will inject the capital into Airtel Africa Ltd — a UK-incorporated subsidiary of Bharti Airtel — through a primary equity issuance at a post-money valuation of about $4.4 billion.
This investment demonstrates the confidence of leading global investors in the company’s ongoing robust growth and profitability, Bharti Airtel said in the statement.
The investment also reinforces the increased growth potential of the Africa telecommunications sector, it added.
The proceeds will be used to reduce Airtel Africa’s existing debt of about $5 billion and for growth of its operations on the continent. Airtel Africa subsequently intends to launch an initial public offering (IPO) and use the proceeds primarily to cut debt.
“The transaction will help us further deleverage our balance sheet and boost our capacity to upgrade networks, expand coverage in different markets and achieve rapid growth of Airtel money across our operations,” said Raghunath Mandava, Bharti Airtel’s managing director and chief executive officer for Africa.
This marks the third time that New York-headquartered Warburg Pincus is investing in a Bharti group company. It had first invested in Bharti Airtel in 1999 and again in 2001, putting in a total of $292 million.
Warburg had sold its stake in Bharti Airtel in three tranches in 2004 and 2005, pulling out a combined $1.83 billion in what remains its largest exit in India and one of the largest by any PE firm in India. In fact, the highly profitable exit highlighted India as an investment destination and turned PE firms’ attention to the South Asian nation.
Its latest investment suggests that it sees Airtel as a long-term prospect.
Last December, Warburg had said that it would buy a 20% stake in Bharti Telemedia Ltd — the direct-to-home television arm of Bharti Airtel — for $350 million (Rs 2,259 crore).
Airtel Africa provides telecom services in 15 countries on the continent, with Nigeria being its most profitable market.
Airtel had entered the African market in 2010 after acquiring Zain Telecom's business in the continent for about $10.7 billion in the second-biggest overseas acquisition by an Indian firm. However, the unit has struggled to be profitable.
The company attempted to sell operations in four African countries to France's Orange in 2015 but the deal never fructified.
It was able to achieve a full year of positive net earnings for its African business only in the financial year 2017-18, the company said in its annual report. Operational expenses dropped by 9.8%, which helped the company improve its earnings before interest, taxation, depreciation and amortisation (EBITDA).
In 2017-18, the company made inorganic moves in Africa in a bid to consolidate its presence in the African market. It acquired the business of Millicom International Cellular in Rwanda.
Back in India, local telecom companies have been staring at losses as they cope with the growing clout of Reliance Jio Infocomm Ltd. The company has gained in market share by flooding the market with cheap fares and discounts.
Jio’s aggressive cornering of market share resulted in Vodafone Group Plc’s India unit and Aditya Birla Group company Idea Cellular Ltd merging to create the largest cellular company in India. Norway’s Telenor sold its business to Bharti Airtel Ltd and exited India. Last year, Bharti Airtel Ltd also acquired Tata’s telecom business.
It also struck a spectrum deal with Aircel to expand 4G services in India.
Bharti Airtel reported a net profit of Rs 79 crore in 2017-18 after posting a loss of Rs 9,925 crore in the previous fiscal.
However, the company’s net debt rose to Rs 95,220 crore, up from Rs 91,399 crore during the same period.
Last November, Bharti Airtel sold a 4.49% stake in its telecom tower infrastructure arm, Bharti Infratel Ltd, for Rs 3,325 crore ($510 million) to trim its debt.
A few months before that, private equity firms Kohlberg Kravis & Roberts (KKR) and Canada Pension Plan Investment Board (CPPIB) had together bought a 10.3% stake in Bharti Infratel for Rs 6,193 crore.