Moody's Investors Service has downgraded to Ba1 from Baa3 the senior unsecured rating for Indian mobile operator Bharti Airtel as well as the backed senior unsecured notes issued by its wholly owned subsidiary Bharti Airtel Int'l (Netherlands). At the same time, Moody's has assigned a Ba1 corporate family rating to Bharti and withdrawn the company's Baa3 issuer rating. The ratings outlook is negative.
According to Moody's, the downgrade reflects uncertainty as to whether or not the company's profitability, cash flow situation and debt levels can improve sustainably and materially, given the competitive dynamics in the Indian telecom market.
Bharti Airtel reported EBITDA of INR 265 billion for the 12 months ending 31 December, representing a 15.5 percent decrease year-on-year. The profitability of its core Indian mobile segment, which contributes around 37 percent of EBITDA, remained low, generating just INR 98 billion over the same period.
The Ba1 CFR reflects the company's solid market position in the high growth Indian mobile market. It also considers Bharti's aim to reduce debt levels significantly through asset sales and the secondary IPO of its African operations, Moody's said.
Moody's estimates the profitability of Bharti's Indian mobile segment will remain low over the next several quarters in the absence of a fundamental change in the pricing of mobile services, together with proportional shift in the composition Bharti's subscriber base to high-end 4G customers. However, the company has taken steps to improve revenues and profitability including its minimum recharge plans.
The outlook is negative. Although significant level of capital-raising over the near-term could be used to reduce debt levels, weak cash flow generation of the core mobile operations will likely keep leverage elevated, Moody's added.
The negative outlook also reflects that expected asset sales are subject to market timing and/or require regulatory and shareholder approvals, therefore raising execution risks with respect to the amount of proceeds ultimately raised, as well as the timing of their completion. That said, Moody's recognizes the company has already raised USD 1.45 billion from the pre-IPO of its African operations, with around USD 1 billion used to repay debt on a consolidated basis. The rating outlook could be stabilized if Bharti strengthens its credit profile, with a stabilization of its core Indian mobile and non-mobile services.
In response to the revision in the credit ratings by Moody's, Bharti Airtel claims to continue to be “diversified and strong”. “While Africa and non-mobile businesses in India exhibit healthy momentum, the continuing trend of robust growth in data volumes in India and also the imminent recovery in voice tariffs will further help overall business going forward”, the company said.
Bharti Airtel noted that its capital structure has already benefitted from the recent equity infusions via the marque investors in its Africa business and infusion in the India DTH business, totaling USD 1.7 billion. The company continues to explore other equity driven initiatives including a planned listing of African operations and also any tower stake sale post the merger of Infratel and Indus. All of these, and more, are expected to provide further robustness to the capital structure, the company said.
With the Africa debt (including the acquisition debt) already reduced to USD 3.5 billion due to the above initiatives (and prior to planned IPO), as also the fact that USD 6 billion of debt in India is under 16-year deferred spectrum payments, the Airtel belies its “overall debt situation is already comfortable and the planned initiatives will further benefit”.
Also, the Airtel board has recently formed a fund raising committee whose recommendations have been noted by the board and these shall be considered at its meeting convened for 28 February. The company continues to be rated as investment-grade by Fitch Ratings and Standard and Poor's.
