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Airtel's global expansion unhampered by $11.7B debt

Fund raising from share issues and the sale of a stake over the past year have helped the Indian telco shave US$1B off its debt, and support its push for overseas expansion.
Written by Mahesh Sharma, Correspondent

Bharti Airtel has made inroads into reducing its debt after a busy year of fund raising, which have also supported its continued overseas expansion.

According to the Indian telco's fourth quarter and full year earnings announcement, net debt stands at US$11.7 billion at the end of FY2013 after repaying creditors almost a billion dollars over the past year. At the end of the 2012 financial year, net debt was US$12.7 billion, down from US$13.4 billion in FY2011.


Airtel paid off US$976 million debt using the proceeds of recent fundraising initiatives. The company also scheduled to repay another US$500 million to creditors after March 31.

Raising capital

Part of the raised capital came over the past six months to the tune of US$3.35 billion, via bond and equity markets and institutional investors. Last week, the Qatar Foundation Endowment spent US$1.26 billion to purchase five percent of Airtel. The deal for 199.87 million shares at 340 rupees each would strengthen the company's capital structure, the telco said in a statement.

In March, a US$1 billion bond issue was oversubscribed by over nine times. Soon after the telco conducted a smaller US$500 million transaction. In Q3 FY2013, Airtel issued new shares, which were bought at 220 rupees each, netting proceeds totalling US$590 million.

The capital has allowed Airtel has continued on its ambitious global expansion.

Last week the Indian telco acquired the 30 percent of Airtel Bangladesh owned by the Warid Group, making the foreign operation a fully-owned subsidiary. In late April, Airtel acquired Warid Telecom Uganda, which boasts almost 7.4 million customers and 39 percent market share.

The expansion comes slowing growth of its bottomline. Last week, Airtel posted a 50 percent drop in its annual net profit at US$414 million (22.76 billion rupees).

While annual operating free cashflows rose 11.9 percent to US$2.09 billion (113.34 billion rupees), the cashflows in Q4 FY13 were 23.1 percent lower than in the corresponding period the previous year.

Amit Goel, CEO of Bangalore-based consultancy KnowledgeFaber, said Airtel accumulated its level of high debt in 2010 when it snapped up large amounts of 3G spectrum, and acquired the African mobile operations of Kuwait's Zain.

He said that expansion won't solve the problem of declining revenues. "The companies in this telecom industry are expected to underperform in the same way until they find out some alternatives to boost their revenues," Goel said.

Forrester India vice president Manish Bahl told ZDNet that Airtel will only succeed after it overcomes fundamental weaknesses: frequent management changes, high attrition rate, and a declining focus on rural market. "All these factors are leading to weak execution strategy for the organization," Bahl said. 

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