Airtel ups stake in Bharti Infratel by 4.94% via block deals, pays avg Rs 2,882.32 Cr

New Delhi: Bharti Airtel, India’s second-largest telco, increased its stake in tower unit Bharti Infratel by buying a 4.94% stake in open market block deals, paying an aggregate Rs 2,882.32 crore.

According to bulk deal data on the National Stock Exchange, US private equity firm Providence exited from the merged Indus Towers-Bharti Infratel entity by selling its entire 3.25% stake. Other sellers including foreign institutional investors and overseas fund house Edge Point, which held an over 3.4% stake, sold a portion of their shares.

“Nettle Infrastructure Investments Ltd., a wholly owned subsidiary of the company, has acquired an additional equity stake of 4.94% (or 13.3 crore shares) in Bharti Infratel Ltd. today,” Bharti Airtel said in a stock exchange filing on Wednesday evening.The Bharti Infratel stock climbed 4.1% to Rs 224.80 at the close on the BSE, giving the company a market capitalisation of Rs 60,582.18 crore. The name of the newly merged listed entity will be changed to Indus Towers Ltd.

Bharti Airtel and Nettle held a combined stake of 36.73% in Bharti Infratel. With the purchase, Nettle’s stake has increased to 18.62% and their combined stake is now 41.66%, Airtel said in the filing. Under creeping acquisition norms, promoter purchases are capped at 5% of equity in a year.

Vodafone Group holds 28.12% in the merged entity. Private equity firm KKR and the Canada Pension Plan Investment Board, which hold a combined 7.1% stake, and Vodafone Group were not among the sellers. Vodafone Idea has already cashed out, receiving Rs 3,760.1 crore in cash for its 11.15% holding in Indus Towers.

Bharti Infratel and Indus Towers announced their merger on November 20, creating the largest tower company in the world outside China, with 163,000 towers across 22 telecom service areas.

“The merged tower-co (BHIN & Indus) is expected to announce a special dividend of about Rs 48 billion (Rs4,800 crore) within three months of its merger closure. At the new ownership of 41.66%, Airtel would get a proportionate pre-tax special dividend of Rs 20 billion (the additional 4.9% stake would lead to increased dividend of Rs 2.36 billion). This would largely help partially fund this transaction,” brokerage BofA Securities said in a note released after Airtel’s stake buy.

At 5.8 times the expected FY22 Ebitda (versus a historical range of 8-12X), Bharti Infratel is one of the cheapest tower companies, cheaper than even Indian operators, BoFA said.

The tower company’s prospects may see improvement with an expected uptake in 5G and any potential fibre-leasing model in the next two-three years, but on the other hand, potential rent cuts and further shrinking of coverage by Vodafone Idea may hurt fundamentals, the house said.

It also noted that the Infratel stock price had risen 23% in the last 12 trading sessions, compared with the Sensex’s 2% gain, thus making it a relatively costlier investment for Airtel.

Brokerage CLSA, in a recent note, said Infratel’s valuation was compelling, and rated the stock a ‘Buy’ with a price target of Rs 280.