India's Airtel looks to raise funds, possibly from Google

India's second-largest service provider, Bharti Airtel, is in the news for two reasons. The company has come up with rights issues to raise funds for the upcoming 5G battle and to bring down its debt. Further, rumors are circulating that the internet giant Google is in talks with Airtel to invest in the company.

There is strong speculation in media reports about a possible investment by Google in Bharti Airtel. Google has earlier invested in Airtel's rival, Jio Platforms, the parent company of Reliance Jio.

Reacting to media reports, the company said in Bombay Stock Exchange (BSE) fillings, "Being a significant player in the telecom and digital industry, the company receives interests from high quality investors and companies for its various businesses." It further said that as a matter of policy it does not comment on media speculation reports.

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Investment from Google, if it happens, would help the company in not just garnering additional funds but it also would allow Airtel to leverage the technical prowess of the global technology giant.

A New Street Research note, led by analyst Chris Hoare, said, "What does Google get? Google’s interest appears to be in stimulating Indian internet development. Backing both major horses (Bharti and Jio), would put Google in a very strong position to weather whatever regulatory hurdles are put in its way. Given the size of India, the company is clearly keen to have a stable regulatory path. It is also worth bearing in mind the Indian government attempting to entice FDI aggressively to drive economic recovery post-Covid and in particular U.S. manufacturers to migrate operations out of China."

Rights issue

Bharti Airtel's board approved raising $2.86 billion (INR 210 billion) at a price of $7.30 (INR 535) per share. A significant part of these funds would be used to set up a 5G network. Earlier this year, Airtel conducted a 5G non-standalone (NSA) trial using 1800 Mhz spectrum. It is also now carrying out a 5G trial using the spectrum given by the Department of Telecommunications on an ad hoc basis. 

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India is likely to hold a 5G spectrum auction in 2022, and the company is expected to launch services by the end of 2022. The reserve price for the 5G spectrum is $67.42 million (INR 4920 million) per MHz in the 3.5 GHz frequency band. While it is possible that the government might bring down the price, by all indications, Airtel will need to spend a considerable amount to procure 5G spectrum. The auction coupled with the launch of 5G services will definitely lead to additional capex expenditures for the company. 

While Airtel would need funds to procure 5G airwaves, this is just one part of its requirement. Another crucial aspect of 5G investments includes expanding its fiber network. This is important not just for its fiber-to-the-home (FTTH) services, which are high in demand and have better ARPU when compared with wireless services, but also to deliver on the promise of 5G. Airtel would also be using funds to increase its data center capacity.  

Further, the company needs funds to continue to consolidate its position in its fight with Jio. Airtel lost significant market share after Jio entered the market in 2016. It was able to reclaim a part of the lost market share last year. Airtel would like to keep investing in network upgrades and expansion to maintain the same momentum in the 5G market as well.  

Fundraising is also vital for Airtel because it needs to bring down its massive debt of $23.14 billion (INR1688 billion) at the end of the June 2021 quarter. This issue was raised by Sunil Bharti Mittal, chairman of Bharti Enterprises, during a recent interaction with investors.

"We have been loaded with extraordinary debt, which we couldn't have imagined one year back, of AGR [Adjusted Gross Revenue] and spectrum payments. We believe there's an opportunity to accelerate our growth path now, and for that, we want to lower our debt, and have access to capital as and when we need," said Mittal. 

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At this point, the company has a significant number of 2G subscribers on its network. It would be hoping to move them to 4G as it prepares to launch 5G. There is also a possibility that Vodafone Idea is forced to wrap up operations in India. In that case, Airtel would need to beef up its networks to accommodate a percentage of Vodafone Idea's subscribers.

*Fierce Editor-in-Chief Linda Hardesty contributed to this report.