Rise in the shareholding of Singtel will result in a reclassification of Bharti Telecom as a ‘foreign’ investor.
Singtel is likely to raise its stake in Bharti Telecom, the single largest shareholder in Bharti Airtel, to beyond 50%. The move will convert the holding company into a foreign-owned entity and, consequently, take overseas ownership in the mobile operator to over 85%.
At present, Bharti Telecom’s 41% equity stake in Bharti Airtel is classified as ‘domestic’ shareholding as it is majority-owned by the Sunil Mittal family (52% stake).
Even a small rise in the shareholding of Singtel, which currently owns 48% in Bharti Telecom, will result in a reclassification of Bharti Telecom as a ‘foreign’ investor since it will then be majority-owned by the Singapore company.
After this reclassification, Bharti Telecom’s entire 41% stake in Bharti Airtel will be considered foreign equity. As a result, foreign shareholding in Airtel, which currently stands at 43%, could rise to 85.07%. To make proposed changes compliant with FDI norms, Bharti Airtel last month sought government nod to increase foreign shareholding to 100%.
In Order to Reduce Debt
Existing rules allow 49% foreign investment under the automatic route, and anything between 50% and 100% needs to be cleared by the government.
A Bharti Group spokesperson told ET that in order to reduce some debt, Bharti Telecom planned to seek investments from its promoter entities and Singtel. “Even a marginal increase in foreign equity would take the foreign investment in Bharti Telecom above 50%. Once that happens, Bharti Telecom’s entire stake in Bharti Airtel will automatically be considered as foreign investment. Consequently, foreign investment in Bharti Airtel can touch 85.07%, necessitating the application for increase in foreign investment,” he said.
The company had sought approval for 100% FDI to keep further headroom for investments by foreign institutional investors and foreign portfolio investors, added the spokesperson.
Currently, Singtel — directly, and indirectly through Bharti Telecom — owns over 35% in Airtel, while Mittal family’s effective shareholding is at around 27%. Mittals’ holding is expected to remain at over 26% after the expected overseas fund infusion in Bharti Telecom, said sources.
The Bharti Group spokesperson declined to disclose the current debt on the books of Bharti Telecom, or the amount it plans to retire. Sources said the company had a debt of about Rs 4,500 crore as of March 31, 2019. Since then, it has raised over Rs 3,000 crore through bond sales to invest in Bharti Airtel’s Rs 25,000-crore rights issue.
Airtel shares closed 0.7% lower at Rs 365.75 on the BSE on Wednesday.
The change in Bharti Airtel’s ownership classification comes at a time when the telco is seeing initial signs of a revival with sequential growth in revenue and average revenue per user.