Bharti Airtel, one of India’s leading telecom operators, has announced that it will allot 38.6 lakh equity shares to certain holders of its Foreign Currency Convertible Bonds (FCCBs) at a conversion price of Rs 518 per equity share. This follows the receipt of notices for conversion of FCCBs of principal value of USD 27.795 million from the FCCB holders.
What are FCCBs?
FCCBs are debt instruments that allow bondholders to convert their holdings into stocks of the issuing company at a predetermined price and time. They are issued to raise funds from overseas markets and usually have a lower interest rate than regular bonds. FCCBs also give the issuing company the benefit of deferring equity dilution and reducing debt servicing costs.
Why is Bharti Airtel allotting shares to FCCB holders?
Bharti Airtel had issued USD 1 billion worth of FCCBs in January 2020, with a maturity date of February 2025 and a coupon rate of 1.5%. The FCCBs were convertible into fully paid-up equity shares of Rs 5 each at any time on or after February 27, 2020 and up to the close of business hours on February 07, 2025, at the option of the FCCB holders.
The conversion price of Rs 518 per equity share was determined based on a 10% premium over the volume-weighted average price of Bharti Airtel’s shares on January 14, 2020, the date of the offering circular.
According to a regulatory filing by Bharti Airtel, the company received notices for conversion of FCCBs of principal value of USD 27.795 million from certain FCCB holders on February 01, 2024. The company’s special committee of directors for fundraising approved the allotment of 38.6 lakh equity shares to these FCCB holders on February 02, 2024.
How will this affect Bharti Airtel’s share capital?
The allotment of shares to the FCCB holders will increase Bharti Airtel’s paid-up equity share capital by Rs 19.32 crore, from Rs 28,615 crore to Rs 28,634 crore. The number of fully paid-up equity shares will increase by 38.6 lakh, from 5,628.8 crore to 5,629.2 crore. The number of partly paid-up equity shares will remain unchanged at 392.3 crore.
The outstanding principal value of FCCBs, as listed at Singapore Exchange, will reduce by USD 27.795 million, from USD 554.831 million to USD 527.036 million.
How will this affect Bharti Airtel’s share price?
The allotment of shares to the FCCB holders will have a dilutive effect on Bharti Airtel’s earnings per share (EPS) and book value per share (BVPS), as the number of outstanding shares will increase. However, this may be offset by the reduction in debt and interest expenses, as well as the potential increase in revenue and profitability due to the expansion of its network and customer base.
The market may also react positively to the conversion of FCCBs, as it signals confidence in Bharti Airtel’s growth prospects and valuation by the bondholders. The conversion price of Rs 518 per equity share represents a premium of about 17% over Bharti Airtel’s closing price of Rs 442 per share on February 02, 2024.