Bharti Global’s decision to buy a large stake in BT from debt-laden Altice UK has been hailed as “confidence boosting” for the British telecom giant, according to analysts.
BT shares surged over six per cent in early FTSE 100 trading following reports that the Indian telecom firm will acquire a 24.5 per cent stake from Altice UK, with nearly 10 per cent being transferred immediately.
The remaining 14.5 per cent will be transferred pending clearance under the UK’s National Security and Investment Act.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, described the move as a “confidence boosting” vote of faith in BT’s long-term prospects.
Bharti Global is “clearly confident that there is long-term untapped value in the group,” she said, particularly in Openreach, BT’s division responsible for maintaining and expanding the UK’s fibre networks.
BT has faced challenges recently, with Openreach reporting broadband losses of 196,000 in the most recent quarter, driven by competition from alternative network providers and a sluggish housing market. It is aiming to reach 25m premises by 2026.
“[Bharti is] also likely to have been encouraged by indications that the cost of building 5G infrastructure may have peaked, and once new customers are moved over to the new networks, there is the potential for lower running costs,” Streeter added.
French telecoms and media giant Altice has come under increasing financial scrutiny amid a large debt burden, which has risen as it took out several loans to build its position in BT.
The group, led by billionaire Patrick Drahi, had secured a £1.5bn margin loan against its BT stake as part of a debt-funded global expansion strategy.
AJ Bell investment director, Russ Mould said that Bharti’s acquisition, conducted in two tranches, with the second contingent on regulatory approval, leaves some uncertainty. “Inevitably there will be speculation about what Bharti intends to do with its stake but, for now, it is ruling out any bid for BT,” he said.
“Investors are not able to extrapolate anything about valuation either given the price Bharti is paying has not been disclosed.
“Management will be glad to hear Bharti are supportive of the company’s current strategy, although clearly they will want to see evidence of progress that can revive a share price which has gone nowhere in the last five years,” Mould added.
The deal marks a reversal of fortunes, as BT once held a significant stake in Bharti from 1997 to 2001, including two seats on its board.
In June, Carlos Slim, the richest man in Latin America, took a 3.2 per cent stake in the company, in what analysts said also signalled a vote of confidence BT.
BT’s first female chief executive, Allison Kirkby, who took the helm earlier this year, has focused on turning the company around, pledging to cut £3bn in costs by 2029 as BT moves past the peak of its broadband capital expenditure.
So far, her efforts appear to be paying off, with BT’s share price up 11 per cent year-to-date.
Telecoms analyst Paolo Pescatore suggested the sale and cash injection will go some way to appeasing Altice shareholders too.
“A surprising move for Bharti,” he said, “which yet again reinforces BT’s current strategy for long term growth and a strong validation of Kirkby’s leadership.”