Know all about Bharti Airtel’s rights issue

31 August 2021
4 mins read
Know all about Bharti Airtel’s rights issue

An Overview

Sunil Mittal, the cellular carrier’s founder and chairman, said on Monday that the company sought to strengthen its access to growth capital and lower its debt load, a day after the company disclosed intentions to raise up to Rs. 21,000 crore through a share sale to existing shareholders.

Mr Mittal stated that the company has been saddled by excessive debt and that now was the moment to invest and expand. The telecom operator is soliciting funds as it prepares to introduce 5G services in the second half of next year, which it intends to achieve by the end of the year.

With over 352 million members, Airtel, India’s second largest carrier, has stated that it will not hesitate to raise prices further, but will do it gradually. After Mukesh Ambani’s Jio Infocomm entered the market in late 2016 and announced free voice calls and reduced data pricing, India’s telecom market has seen an aggressive price war in recent years.

Further Key Takeaways

Mr Mittal also expects mobile ARPU, a crucial statistic for telecom operators, to rise to 200 by the end of the current fiscal year. For the quarter ending in June, Airtel’s ARPU was 146.

Bharti Airtel’s shares ended 4.3 percent higher after the investor call, their greatest daily rise in over a month, boosted by Mr Mittal’s comments.

Mr Mittal also encouraged the government to increase investments in digital infrastructure, stating that he expects telecom businesses’ levies and costs to decrease. “We’ve also been encouraging the government to address several serious concerns that are preventing further investment in the sector due to negative to low returns,” he said.

What does it mean for Bharti Airtel to raise funds through a rights issue?

Bharti Airtel’s board of directors has authorised the company’s proposal to raise up to Rs 21,000 crore through a rights offering. Sunil Bharti Mittal, the company’s chairman, will host an investor call on Monday to update investors on the rights issue.

A rights issue is one of the various methods a corporation can obtain more capital when it is needed, as defined by company law. A rights issue allows investors to purchase new shares of a firm at a lower price than the current market price.

The rights issue is only open to existing shareholders of a corporation. This means that, rather than going to the general public, only the company’s existing shareholders will be able to purchase additional shares if they so desire.

When a company declares a rights issue, it also declares a rights entitlement ratio. For example, if a firm publishes a 1:4 entitlement ratio, it indicates that a shareholder can acquire one more share in the rights issue for every four shares they already own.

In most cases, the market price of a share is diluted as the number of shares of the corporation in circulation increases. However, in other situations, if it is believed that the money raised through the rights issue is for a good cause and will benefit the company in the short or long run, the stock price and market capitalization of the company will rise.

What does it imply for Bharti Airtel to raise funds through a rights issue?

The board of directors of Bharti Airtel has given a heads up to a rights issuance worth up to Rs 21,000 crore. Existing shareholders will be able to buy one share for every 14 shares they currently own.

The company is generating further capital from existing investors at a moment when there are discussions about a monetary bailout scheme for the telecom sector, with two of the three telecom companies facing massive payouts over the next decade as a result of the Supreme Court’s adjusted gross revenue judgement.

While Bharti Airtel is slightly better off than Vi (Vodafone Idea) in terms of AGR payouts, the company could still benefit from a financial package. According to analysts, Bharti Airtel will use the additional funds to expand its present capacities in order to compete with Reliance Jio Infocomm in the 5G market. The reason for the fundraiser has not been revealed by the company.


Frequently Asked Questions

Why would a firm do a rights issue?

Existing shareholders can expand their ownership in the company at a lower price than the current market price through rights offerings. When existing shareholders subscribe to the rights issue without relinquishing their rights to outsiders, existing shareholders retain control of the company.

What happens when a rights issue arises?

A rights issue occurs when a corporation allows existing shareholders to purchase additional shares at a discounted price. Typically, the discounted price is only valid for a limited period, after which it reverts to its original value.