Temasek picks 4.99% in Airtel for $2 bn

In what may be the largest private equity deal in the country, Singapore government’s investment arm Temasek Holdings will acquire 4.99% stake in the country’s largest private telecom company, Bharti Airtel, as part of separate but possibly back-to-back transactions that will also see Vodafone selling 5.6% in the company.

The net impact of these transactions will be that the shareholding of Bharti Enterprises, the holding company of India’s largest private telco, will rise marginally from its current 45% and the Temasek-Singapore Telecom combine’s holding (Temasek is the largest shareholder in Singtel) will go up to 36%.

While Bharti executives refused to divulge the deal size and when the Temasek deal will take place, at current market price, it is worth a little over Rs 8,198 crore (about $2 billion).

Bharti and Vodafone had earlier this year announced that the Newbury-based telco will sell 5.6% equity in Bharti Airtel for $1.6 billion in two tranches before November 2008.

“Bharti Enterprises is pleased to announce that one of its group companies has decided to grant an option to acquire an indirect stake in Bharti Airtel Limited to a wholly-owned subsidiary of Temasek Holdings (Private) Limited, Singapore. The option arrangement envisages acquisition of such number of shares which, on exercise, will result in a beneficial stake in Bharti Airtel Limited to the extent of 4.99%,” the company said in a statement. Bharti executives refused to divulge the name of the group company of Bharti Enterprises which has granted the option to Temasek.

This will be Temasek’s second investment in a telecom company in India after it bought 9.9% in Tata Teleservices. Temasek Holdings, the largest shareholder (56%) in Singapore Telecom, holds just over 30% stake in Bharti Airtel.

Bharti executives said despite the deal with Temasek, there will not be a dilution in the promoters’ stake in Bharti Airtel. This implies that the parent company Bharti Enterprises will continue to maintain a controlling interest of a little over 45% in Bharti Airtel. This is because Temasek is indirectly picking up large chunk of the 5.6% stake that British telecom major Vodafone is offloading in Bharti Airtel.

“Vodafone has given us 18 months’ time to buy back its 5.6% direct stake in Bharti Airtel. At the same time, Temasek is picking up stake in one of the Bharti group companies, which translates to a 4.99% indirect stake in Bharti Airtel. Temasek is indirectly picking up the stake that Vodafone will offload. Therefore, net-net, there is no change in the overall shareholding — Bharti Enterprises continues to maintain a controlling interest of over 45% in Bharti Airtel Limited through its subsidiary Bharti Telecom,”

Vodafone had picked up 10% stake in Bharti Airtel in 2005 for $1.5 billion. However, following its acquisition of a majority stake in Hutch-Essar for $10.9 billion, Vodafone had entered into a share sale agreement with Bharti to sell back the 5.6% direct stake in Bharti Airtel for $1.6 billion (Vodafone will continue to hold its 4.39% indirect stake in Bharti Airtel). “The shareholding will be transferred in two tranches, the first before March 31, 2008 and the second by November 2008,” Vodafone had said in May 2007 in a statement after announcing its annual results for the year ended March 31.