Bharti Airtel has announced plans for a Rs 21,000 crore rights issue and all eyes are on the telecom sector once again. Vodafone-Idea propelled the telecom sector into the spotlight earlier this year when it came under fire for an extremely high debt owed to the government on account of spectrum fees and as AGR dues. Airtel too has significant debt on its books, but unlike Vodafone, Airtel continues to garner strength with network expansion and subscriber loyalty. 

Here’s a ready reckoner for Airtel’s right issue:

Key details about the Airtel rights issue

  • In the case of the Bharti Airtel rights issue, shareholders can buy 1 additional share for every 14 fully paid-up shares currently owned by them. 
  • The record date for the rights issue is yet to be finalised 
  • The share price is fixed at Rs 535 per share
  • Shareholders who wish to invest will need to pay 25% of the share price upfront
  • The remainder of the amount will be called upon by the company as required over the next 3 years 

What is a rights issue?

A rights issue gives existing shareholders an opportunity to buy additional shares of the company, typically at a discounted rate as compared to the share price on the stock market. Shareholders have the right but not the obligation to purchase such shares. An ‘outsider’ cannot subscribe to this, i.e., if you don’t already own shares of the company as on a particular date, you don’t get to subscribe to this share issue.

For example, if a company currently has 100 shares on the stock market, it might want to issue 20 more in order to rake in some additional capital. In such a case, existing shareholders would have the right to buy 1 share for every 5 held. If they buy the shares, they now hold six shares but if they do not, their stake gets diluted. Basically, they once owned 1/100th share of the company, but after the rights issue, they own 1/120th share. If the company wants to declare Rs 12,000 as a dividend, they would earlier have received Rs 120, but would now they would only receive Rs 100. 

What Airtel may need funds for

Airtel plans to roll out its 5G network in the near future and capital requirements might be linked to this competitive move. 

Additionally, very much like Vodafone-Idea, Airtel too owes the government a good chunk of debt at over Rs 25,000 crore. The company has to pay about Rs 1,300 crore annually for the next decade to settle this debt. This is after the company has paid up over Rs 15,000 crore of its AGR dues.

Airtel’s overall debts are also placed by some analysts at about Rs 1.6 lakh crore. 

Sunil Bharti Mittal said that the telco may raise tariffs as and when expected, and also expects ARPU to trend towards ₹200 in this financial year. He also said that there are no plans to sell any promoter stake. Mittal further clarified that Airtel will not use the rights issue fund to increase the stake in Indus Tower.

Key figures at a glance

  • Net Revenue

March 2020: Rs 87,539 crores

March 2021: Rs 100,615.80 crores

  • Loss before tax

March 2020: Rs 43,498 crores

March 2022: Rs 14,395.40 crores

Most brokerages, however, continue to place a buy tag on the Airtel stock perhaps on account of the chance of a duopoly in the telecom sector in the future, and the fact that Airtel seems like it has a plan in hand for the future. Airtel has recently increased tariffs and contrary to expectation, this move was seen positively by investors resulting in a share price spike. Speak to your financial advisor before you make any investment decision, especially when it is stock market-related.