Bharti Airtel Ltd. will raise close to $1.25 billion by selling stake in its profitable African business.
Warburg Pincus, Temasek, Singtel, SoftBank Group International, and two others have agreed to invest in the African unit by subscribing to new shares, the company said in a statement released on the exchanges today.
Bharti Airtel said it will use the proceeds to repay debt and for the growth of its African operations. The telecom operator had earlier said it is working on a plan for an initial public offering of its Africa unit in the next one year, to help reduce its debt.
Bharti Airtel would dilute nearly one-third of its stake. After the transaction, it is expected to own close to 65 per cent stake in the African business, while the rest will be held by the new investors and minority shareholders.
After the transaction the entire equity value of the African unit will be close to $4.4 billion, the company said. The deal is valued at close to 7.5 times its last 12-month Ebitda, according to BloombergQuint’s calculation, which is in line with other listed peers.
The enterprise value of listed peers of Bharti Airtel in Africa—Maroc Telecom, MTN Group, Vodacom Group, and Safaricom—is at four to eight times their 2018-19 earnings before interest, tax, depreciation, and amortisation, according to Bloomberg.
Airtel Africa has seen a turnaround of its business in recent years. This investment can be interpreted as growing confidence of leading global investors in the company’s ongoing robust growth and profitability.
The investment also reinforces the increased growth potential of the Africa telecommunications sector.
The proceeds will be used to reduce Airtel Africa’s existing debt of approx. USD 5 billion and for growth of its African operations.
Airtel Africa subsequently intends an Initial Public Offering and use the proceeds primarily for further reduction of debt.
Airtel Africa is experiencing a healthy revenue growth in voice and data services and also strong performance in the Airtel Money business. Its financial performance continues to improve, having turned positive in terms of net profit and operating free cash flow.
In most of the markets in which it operates, Airtel Africa ranks amongst the top two operators. With 4G services live in 9 countries and in process of rollouts in most others, Airtel Africa is well placed to capture a significant market share of the rapidly growing data demand across countries.
The present transaction will not involve any sale of shares by existing shareholders.
“This primary equity issuance clearly underlines the confidence of leading global investors in Airtel Africa’s successful business strategy and its potential to sustain growth and profitability. 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,” Raghunath Mandava, chief executive of Bharti Airtel Africa said.