Bharti Airtel’s merger with Zain Telecom’s African assets capped the remarkable transformation of the Indian mobile phone group from bit-part player into a national champion.
When Bharti first bid for a telecom licence in 1992, it was a rank outsider – a telecom equipment maker without any real experience of operating a telecom company. Nearly two decades later, it is one of the biggest players, not just in India, but in the broader emerging markets.
Bharti was the first Indian telco to attract over US$1bn in FDI – Warburg Pincus and Singapore Telecommunications were among its first investors – and the first from the industry to achieve a stock-market listing. Yet, it was still a relatively small company when it listed in February 2002.
Back then, it had just over 1m subscribers and was adding 100,000 every month. Today, Bharti operates in 19 countries with a customer base of nearly 137m (as of June 2010), and it is adding 3m subscribers every month.
In the capital markets, too, Bharti’s profile continues to improve. Its IPO raised a mere Rs8.34bn (US$183m) eight years back, since when it has taken huge steps to win over foreign investors and lenders.
At that time, the Indian telecom industry was one of the most competitive markets in the region and, perhaps, the world. The situation is no different now, but, then, the sector was also mired in regulatory uncertainty and was hardly attractive for foreign investors.
It was against this backdrop that Bharti ventured into the offshore loan markets in early 2003 for a forgettable debut as far as syndication was concerned. A five-year loan of US$125m struggled to clear the market, despite offering a margin of 160bp over Libor – an attractive level at the time. ABN AMRO, DBS Bank, Standard Chartered and WestLB led the deal.
Since then, it has returned to the offshore loan markets almost every year and achieved tighter pricing on each visit before finding syndication success in September 2005 with a US$225m dual-tranche loan that refinanced its 2003 and 2004 loans. The deal met with an overwhelming response from 18 banks, despite much tighter pricing – at a top-level all-in of 73bp (based on an average life of 3.42 years) – than its previous two loans, although it was still more attractive than other Indian deals in the market offering top-level all-ins of around 50bp over Libor.
However, Bharti’s biggest moment in the offshore loan markets came earlier this year in March when it mandated 11 banks to arrange a US$7.5bn acquisition financing backing its US$10.7bn takeover of Zain Africa. The deal was launched into syndication in mid-August paying a blended top-level all-in of 193.1bp over Libor (based on a remaining average life of 4.4 years).
The arranger group features 11 lenders, including Standard Chartered as lead adviser, Barclays Capital as joint lead adviser and State Bank of India as lead onshore adviser. The other lenders, ANZ, Bank of Tokyo-Mitsubishi, Bank of America Merrill Lynch, BNP Paribas, Credit Agricole, DBS Bank, HSBC and SMBC, are co-advisers.
Three banks, namely Deutsche Bank, Export Development Canada and Intesa Sanpaolo, have joined at the top with a combined commitment of US$850m. However, few others are expected to join in general syndication due to the tight pricing.
Bharti has also built up a strong following in the equity and equity-linked markets. Its February 2002 IPO was the first 100% bookbuild in India. Its equity-linked debut came a year later with a US$100m five-year maiden CB that flew out the door, attracting more than 200 investors and closing 10 times covered.
Despite being aggressively structured – the zero coupon bonds redeemed at 111.84 at maturity to yield 2.25% and converted at a 40% premium – the strong response meant the bonds traded to 106–107 on their first day.
Equity investors in Bharti have made good returns from their investments in the company. Warburg Pincus invested US$200m or so in Bharti in 1999 and recouped around US$1bn from its three block selldowns between August 2004 and November 2006.
Those who bought into Bharti during its IPO, and have been patient enough to remain invested, would have made splendid returns, as well. Bharti’s current share price is Rs366.30 – a return of slightly more than 700% from its IPO price of Rs45.
Prakash Chakravarti