Bharti Airtel is hinting at another round of fund raising, but this time around it is going to be through the INVIT route. Infrastructure Investment Trusts or INVITs were permitted in 2014 as a special purpose vehicle (SPV) to help monetize the assets of a business. So what exactly is Bharti trying to monetize through the INVIT route?
Big optic fiber plan
Bharti plans to use the INVIT route to monetize its 2.7 lakh KM of optic fiber assets spread across India. What this means is that a block of optic fiber assets (either fully or in part) will be transferred to the INVIT structured as a SPV. This SPV will have pass through status and so Bharti will be in a position to transfer its said assets into the INVIT and issue INVIT units against these assets. Structurally, INVITs are just like REITs with a couple of fundamental differences. Firstly, REITS are used to monetize real estate projects into SPVs and issue units while INVITs essentially are used to monetize infrastructure projects in select sectors like roads, expressways, telecom, power etc. Secondly, REITs are structured more like equity participation instruments but INVITs are normally structured to be fixed return instruments. This makes INVITs more attractive to institutional investors. Incidentally, Reliance Jio has already managed to transfer all its optic fiber assets into a separate SPV and has issued INVIT units against them.
Creates a war chest for Bharti
Bharti plans to raise nearly $2 billion by monetizing these optic fiber assets and that gives Bharti the necessary fire power to take on the pricing and data challenges posed by Reliance Jio. With $2 billion in its kitty, Bharti has a good enough war chest to take on the Jio competition for another few years. This is also ensures that the risk of the volatile telecom business gets partly hived to other investors and reduces the risk in the books of Bharti.
Makes Bharti asset-light
What happens in the process is that assets go out of the balance sheet and into the INVIT. This helps Bharti to become more of an asset-light business and in the process it also improves the ROE. Improved ROE means better P/E valuations and that will be another stock currency for Bharti Airtel.
Focus on service aspects
The biggest advantage of this move is that the focus of Bharti shifts more towards managing the service than the assets. It is here that telecom companies can create a differentiator by laying much greater emphasis on the quality and breadth of service provided. The old model was too asset heavy and hence services suffered. In the process is also creates an investment class that could attract institutional interest! ©