Airtel waives off first right of refusal for TCIL’s stake in Bharti Hexacom

Bharti Airtel has waived off its right of first refusal (RoFR) to acquire state-owned Telecommunications Consultants India Ltd’s 30% stake in Bharti Hexacom as it sees no immediate value in such a move, analysts said, quoting the telco’s senior management.

Last month, Bharti Airtel subsidiary, Bharti Hexacom, had filed a draft offer document with Securities & Exchange Board of India (Sebi) to sell a 20% stake of TCIL which will provide the government a partial exit. TCIL’s holding will drop to 10% after Bharti Hexacom’s initial public offer (IPO), while parent company, Bharti Airtel, will retain its 70% stake in the unit.

“Bharti’s management mentioned that Airtel had a right of first refusal to acquire this 30% stake (in Bharti Hexacom) owned by the government via TCIL, but they waived off this right as of now as the telco doesn’t see any value in acquiring the stake from the market, post-Bharti Hexacom listing),” BofA Securities said in a note seen by ET.

BofA added that Airtel’s management believes that a potential Bharti Hexacom initial public offer (IPO), over any other method, would provide transparency in pricing, which is a key requisite of the government when it requires to fully sell its stake in Airtel’s subsidiary.

BofA had participated in an analyst meet hosted by Bharti Hexacom on February 12 in the run-up to the latter’s listing.

The global brokerage said it does not see any impact on Airtel from any potential listing of Bharti Hexacom as the Sunil Mittal-led parent is not reducing its stake in the unit or raising money, and nor would a change of Hexacom’s shareholders alter any P&L item.

Bharti Hexacom runs mobile services in Rajasthan and Northeast. Top industry insiders expect the government to pocket around Rs 6,700 crore from the upcoming 20% TCIL stake sale in the company.

State-owned TCIL is a telecom engineering and consulting firm with business interests overseas, including in pan-African and West Asia markets.

Bharti Hexacom doesn’t own any fibre and leases it from Airtel at an arms’ length pricing basis. It, though, owns spectrum and radio gear. Hexacom also pays for brand & corporate overheads.

ET had reported in its November 23, 2023, edition that the listing is likely to be concluded by early-2024.

Analysts believe the potential of fixed wireless services is high in the two Hexacom circles (Rajasthan, Northeast), given the large land mass and challenging terrain. The connected home-pass cost, though, is the same for the Airtel and Hexacom circles.

But Airtel’s management has said Hexacom won’t be using satellite broadband services. This is since a mobile service is a mass market low-cost high-bandwidth service while satellite broadband caters to more critical and backup communications. “Satellite broadband also can’t be used to watch videos as its speed is low and cost is high,” BofA said.

In its draft red herring prospectus, filed January 19, 2024, Bharti Hexacom had said the company would not receive any proceeds, and that, all offer proceeds would be received by TCIL, post deduction of offer-related expenses to be borne by the latter. Bharti Hexacom expects the listing to enhance the company’s visibility and brand image.

Pricing of Bharti Hexacom’s IPO (as in the final offer price) will be determined through a book-building process. Book running lead managers are SBI Capital Markets, Axis Capital, ICICI Securities, BOB Capital Markets and IIFL Securities as per the draft prospectus.

Parent Airtel had raised its holding in the unlisted Bharti Hexacom to 70% back in 2004 by acquiring Rajiv Malhotra-headed Shyam Telecom’s 37.5% stake in the company.