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Bharti Airtel Has Financial Capacity To Withstand $5 Billion Payout In AGR Dues: Moody’s

Moody’s says Rs35,500 crore cash payment towards AGR dues won’t cause significant deterioration in Bharti Airtel’s credit quality.

A Bharti Airtel Ltd. store stands in Mumbai, India. Photographer: Dhiraj Singh/Bloomberg
A Bharti Airtel Ltd. store stands in Mumbai, India. Photographer: Dhiraj Singh/Bloomberg

Telecom operator Bharti Airtel Ltd. has the financial capacity to withstand a payout of $5 billion in AGR dues, Moody's Investors Service said on Wednesday.

The Supreme Court had earlier this month directed telecom firms to comply with its Oct. 24, 2019, judgment upholding the Department of Telecommunications’ definition of adjusted gross revenues.

According to the DoT estimates, Bharti Airtel has to pay Rs 35,300 crore in AGR dues, but the Sunil Mittal-led operator still completing its self-assessment to determine the final amount, Moody's said.

It said a Rs 35,300 crore cash payment will not cause a significant deterioration in the credit quality of Bharti Airtel. A smaller cash payment of Rs 25,200 crore, reflecting the principal and interest amount only, would position the company more comfortably within its current rating, the ratings agency said. "Recent capital-raising activities provide additional liquidity to fund the AGR payment.”

The full payment has to be made by March 17.

As on Dec. 31, 2019, the firm had consolidated cash and short-term investments of $4.2 billion, with around $2.3 billion held at the Indian operations.

"Following recent capital-raising, we estimated (Bharti's) cash is over $5.0 billion, which can be used to fund the final AGR payment," Moody’s said.

The fundamentals in the Indian telelcom industry are improving, the ratings agency said, but uncertainty around the sustainability of the improvement and future cash requirements (including 4G/5G spectrum auction) remains.

Indian operations account for around 75 percent of Bharti Airtel's debt and 60 percent of Ebitda, a measure of operating profit.

"Debt levels and cash costs are high for this segment and need to be serviced from India's own organic cash flow," Moody’s said. "Cash and EBITDA generated at less than wholly-owned subsidiaries is not directly available to service debt at India. As a result, a significant expansion of India's cash flow is required to achieve meaningful debt reduction on a consolidated basis.”