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Singtel to sign up for 15% of Bharti Airtel’s US$3.5 billion rights issue

The subscription, at an issue price of INR220 per share, represents the rights entitlement for a direct stake of 15%, or 170 million new shares.

Singapore Telecommunications Limited (Singtel) on Thursday said it will subscribe a total value of INR37.5 billion (US$525 million) in the INR250 billion (US$3.5 billion) rights issue by its associate Indian telco services firm Bharti Airtel.

The subscription, at an issue price of INR220 per share, represents the rights entitlement for a direct stake of 15%, or 170 million new shares.

According to Singtel, a total of 67% of the rights issue has been committed through Bharti’s major shareholdings and Singapore’s sovereign wealth fund GIC.

With the renunciation to GIC and upon the closing of the rights issue, Singtel’s stake in Bharti is at 35.2%, which continues to make it the largest shareholder for the Indian firm.

Analysts at ratings agency Moody’s said the exposure in the additional equity injection to Bharti would increase Singtel’s gross leverage to around 2.3 to 2.5 times and net leverage to around 2.2 to 2.4 times, and that would put a strain on the telco’s cashflow.

Proceeds from rights issue to strengthen Bharti's balance sheet as it continues to expand

Bharti will be using the proceeds from the rights issue to lower leverage and strengthen its balance sheet as it continues to invest in networks and spectrum in a highly competitive home market.

Bharti has been an associate of Singtel since the latter bought a stake in the firm in 2000. The Indian telco has operations in 18 countries across South Asia and Africa and a mobile customer base of close to 385 million.

The Indian mobile market is the second largest in the world, and accounts for 15% of the world’s mobile subscriber base, according to the Groupe Spéciale Mobile Association.

Bharti has been netting growth due to its presence in the market. The firm posted its highest ever quarters of 4G customer growth recently, adding over 11 million 4G customers in the last financial quarter.

Singtel’s shares fell slightly on Thursday, with the stock falling to as low as 1% following negative reports on the firm’s outlook a day ago. Experts had cited increased financial risks for the telco after it subscribes to Bharti’s rights issue.

At 3.30pm Singapore time, the telco’s shares were 0.67% or S$0.02 lower, at S$2.96.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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