Bharti Group Invests $4 Billion in BT Group, Acquiring 24.5% Stake

New Delhi, Aug 12 (PTI) Telecom tycoon Sunil Mittal on Monday said BT Group's leadership position and a strong portfolio of offerings spanning broadband, fibre, mobile and enterprise space marked a "good, long-term investment" opportunity for Bharti Group, and expressed confidence in the "iconic" British telecom giant's strong growth prospects and free cash flow potential for the future.

The comments assume significance as Bharti Global - the international investment arm of Bharti Enterprises - announced plans for a 24.5 per cent stake buy in BT Group. The deal estimated to be worth USD 4 billion is slated to make Bharti the single largest shareholder in Britain's largest broadband and mobile company.

Mittal said that the investment is in a sector that Bharti understands, in a company it knows well -- BT and Bharti have enjoyed ties going back more than two decades -- and more importantly in a country (UK) that has deep and close relationship with India.

He exuded confidence about the investment and business prospects of BT, and indicated that while the priority, for now, is to understand the UK market in depth, the Group would not shy away from lucrative opportunities in Europe, as and when they arise in future.

"We got this opportunity to buy a very important block of shares. It is very difficult and hard to buy such stock in the market. It takes a long period of time and there are uncertainties of pricing... here was a block with a willing seller (Altice UK) who moved in to make this offer and we quickly decided to take the same," Mittal said.

BT had acquired a 21 per cent stake in Bharti Airtel in 1997, and Bharti's latest move to acquire a 24.5 per cent chunk in Britain's largest broadband and mobile company now marks a defining moment for the Indian telecom conglomerate.

"I think this is a very attractive buy... the UK and European telecom companies are trading at low multiples...so given the cash flow expectations of BT, we believe this is going to be a good investment and it is a long-term investment," Mittal told reporters on a call.

Mittal said that there is no plan at the moment to increase the holding beyond 24.5 per cent, nor is Bharti keen on a board seat for now. The stake had been acquired from an existing shareholder, not directly, and moreover till such time the entire 24.5 per cent stake is bought, Bharti believes it would be prudent not to be part of any internal process of BT.

When asked why Bharti had chosen not to take a board position in BT despite the stake purchase, even though BT's ownership of a 21 per cent stake came with two board seats in Bharti Airtel from 1997-2001, Mittal said that the holding in BT will give the Group an influential position in the company.

He said: "At this stage, we are not asking for a board seat because it is not an investment that we are making with BT...in case of BT...they came into Airtel, bought the stake from Airtel and so there was...negotiated settlement. Over here we have bought...from a seller, who also by the way has no board seat."

Mittal said he can add a tremendous amount of value be it within or outside the board.

"Right now until all the stake is bought, it is best that we are not part of any internal process of BT because we are still to complete to entire stake buy," he said.

Son Shravin Bharti Mittal, Managing Director of Bharti Global highlighted that this was a "rare opportunity to buy a stake of this size".

"BT is exciting for a couple of reasons. It has a perfect combination of a stable cash flow profile from its consumer business, BT business and growth coming through `openreach'...our expectation is that there is enough clarity that the management is delivering, there is clarity of vision and clarity on execution, and it is the right time to enter as an investor in BT," he said.

He added: "Our belief is that in the coming years, we will see a significant expansion of the cash flow profile, and the timing was rightly-suited for us at the international arm for this investment."

While the market growth in developed countries and economies tends to be lower, Sunil Mittal said that the size and scale of BT's operations is "pretty large" at USD 25 billion in revenue and 10 billion dollars of EBITDA.

"...the growth in Europe and UK is bound to be much, much lower....(as) in countries and economies which are fully developed. So growth is very small, one-two per cent a year....But revenue, as I mentioned, are pretty large, 25 billion dollars of current revenues, and 10 billion dollars in EBITDA...can we create more efficiency, can the free cash flows increase over a period of time...," he said.

BT, he noted is the leading mobile provider in the UK and perhaps the only company to cover 30 million homes on fibre broadband (60 per cent of which is already done and the rest is set to be completed in the next two years).

"So 'Openreach' will have fibre going to every office, every home, every outpost in the country. They have home broadband, they have wholesale fibre under `openreach', they have mobile, and they have enterprise. It is exactly like Airtel. If you look at Airtel, revenue, EBITDA...is a quite mirror image," Mittal said.

On how the latest move would impact Bharti's own operations in India, Mittal clarified that Airtel and BT are independent investments. Airtel, at the moment, is not engaged in this particular deal nor seeking any technology or help from BT.

"As you know, Airtel has not made this move...this is an investment by Bharti Enterprises, best practice sharing can always take place given the common shareholders on both sides but Airtel at the moment is not engaged in this particular process...for seeking any technology or any help from BT...They are two independent investments but I am sure, given the commonality of shareholding, there will be discussions, ideas from both sides," he said.

Bharti will acquire about 9.99 per cent stake in BT Group immediately, with the balance of 14.51 per cent set to be acquired post regulatory clearances.