Telecom Companies Start Raising Funds To Shore Up Their Finances

Bharti Airtel’s board approved the company’s rights issue to raise upto Rs 21,000 crore. Last month, Ravinder Thakkar, the managing director of Vodafone-Idea had also announced the telecom operator’s plans to raise funds.

Airtel would be the second private telecom company to raise funds after Jio Platforms raised $15.2 billion a year ago. Reliance Industries Limited, the parent company of Jio, divested 33 per cent of its stake in Jio Platforms.

Currently, Jio counts Facebook, Google, Kohlberg Kravis Roberts & Co, L Catterton, Qualcomm, Intel Capital among others as its investors. The move helped the company pare its huge debt. Partnering with companies like Google and Facebook can be a symbiotic relationship.

Large Internet companies can expand their reach through Jio’s platform, which has been expanding into all digital segments. Reportedly, Google is looking to invest in Bharti Airtel during the new offer.

The telecom sector is looking to nurse itself back to health after being hit by the double whammy of intense competition and the adjusted gross revenue (AGR) tax ruling. Vodafone-Idea has been the worst hit with total liabilities of Rs 1.8 lakh crore. Its parent organisations, Vodafone Plc and the Aditya Birla Group have been reluctant to infuse more funds into the company.

Billionaire Kumar Mangalam Birla, the chairman of the Aditya Birla Group, has also written a letter to the government and asked it to takeover the faltering telecom operator. Despite taking approval for a fund infusion of Rs 15,000 crore through the foreign direct investment (FDI) route, Vodafone Idea is yet to begin raising funds.

Jio’s low tariffs caused several operators to go out of business while others like Airtel and Vodafone bled for a long time. Nevertheless, as the telecom industry becomes an oligopoly, players are attempting to increase tariffs. There have been only two tariff hikes since December 2019. Telecom companies have been continually reporting low average revenue per user (ARPU), a key metric in the telecom market.

While Bharti Airtel has led the tariff hikes and has a higher ARPU, its finances remain relatively weak which has led to the current fundraise. Given the capital intensive nature of the industry where revenue growth requires heavy investments in infrastructure, equity financing could help Bharti grow without taking on more debt immediately.

So far, the government has not extended any benefits to the telecom sector despite the precarious state the sector is in. Given the high exposure of Indian banks to telecom companies, the call for government support has been growing louder.