Qatar Foundation to take 5% stake in Bharti Airtel for $1.26bn

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India-based telco says investment will help it increase stakes in some of its units.

Qatar Foundation Endowment has agreed to invest $1.26 billion in Bharti Airtel Ltd. for a 5% stake, a deal that will give the Indian telecommunications company funds to reduce debt and expand operations.

Bharti will issue 199.87 million new shares at 340 rupees ($6.3) each to Qatar Foundation Endowment, the companies said in a joint statement Friday.

Qatar Foundation Endowment is an investment firm set up recently to fund the activities of Qatar Foundation, a not-for-profit organization of the Gulf country’s royal family. It will have a member on Bharti’s board.

“The investment will further strengthen the capital structure and provide further flexibility for the company to deliver on its growth strategy,” Bharti said in the statement.

Qatar Foundation Endowment’s acting chief executive, Rashid Al-Naimi, said it is a long-term global investor and that it “looks forward to supporting Bharti in realizing the full potential” of its business.

For Bharti, in which SingTel owns a stake of about 32%, the deal will give immediate funds at a time when it is hurt by high interest cost on the debt it took in 2010 to buy the African operations of Mobile Telecommunications Co. This high cost is hurting its financial performance and limiting its investments.

On Thursday, the company said its January-March net profit halved from a year earlier, hurt by continued losses at the company’s African unit and high interest cost. That was the 13th straight quarter in which Bharti posted a fall in profit.

In India, where it is the largest telecom company by subscribers, Bharti is hurt by regulatory obstacles such as high bandwidth costs and legal disputes over some services.

The company had about $11.74 billion of debt at the end of March. Bharti raised $1.5 billion by selling bonds in the overseas market during the January-March quarter to repay some higher-cost loans. It also sold stakes in some of its units earlier to raise funds to reduce debt.

The investment from Qatar Foundation Endowment will also likely help Bharti buy out its minority partners in some of its units.

On Thursday, Manoj Kohli, its chief executive for international operations, said Bharti will look at buying out its minority partners in some units in a bid to increase the company’s share of profits from those units. It currently has six-seven minority partners in its 17 units in Africa, he said at the company’s press conference to announce its results.

On Thursday, its unit Bharti Airtel Holdings Singapore Pte. agreed to buy the 30% stake it doesn’t already own in Airtel Bangladesh Ltd. from Abu Dhabi-based Warid Telecom. In late April, it agreed to buy the Warid Group’s telecom operations in Uganda.

Bharti recently bought partner Alcatel-Lucent’s stake in a joint venture that was managing Bharti’s fixed-line and broadband networks in the India. The company also increased its holding in its Nigerian unit to 79.06% by buying a 13.4% stake held by some of its existing shareholders. Goldman Sachs was the financial adviser for Qatar Foundation Endowment on this deal.