Fitch Ratings Takes Bharti Airtel Off ‘Watch Negative’, Affirms BBB- Rating
Fitch Ratings Inc. has taken Bharti Airtel Ltd. off 'watch negative' and affirmed the telecom operator's long-term foreign currency issuer default rating at 'BBB-' with a stable outlook, the global ratings agency said on Thursday.
"The Stable Outlook reflects our view that an equity injection of $2 billion in January 2020 and Ebitda growth for FY20 and FY21 will be more than sufficient to offset the increase in debt to pay regulatory dues of up to $4.9 billion, which stem from a dispute over adjusted gross revenue (AGR)," it said in a statement.
"Bharti's management estimates the regulatory dues will not exceed the provision amount of $4.9 billion," Fitch Ratings said.
On Feb. 17, Bharti Airtel paid Rs 10,000 crore to Department of Telecommunications after the Supreme Court on Feb. 14 rejected telecom firms’ petition to ascertain with the DoT the amount and timing of payment of AGR dues.
The Supreme Court's Oct. 24 ruling led the DoT to seek hefty unpaid dues on licence fees and spectrum-usage charges from telecom firms. The DoT demand relates to a 14-year-old dispute regarding the definition of AGR, which the Supreme Court agreed should include all kinds of income generated by the operators.
"The Rating Watch Negative is removed from all the ratings," Fitch said.
It estimated that funds from operations adjusted net leverage will improve to 2.3-2.4 times in FY20 and to around 2.0X in FY21—excluding $6.3 billion in deferred spectrum costs—below 2.5 times, the threshold above which it may consider negative rating action.
The $2 billion equity injection in January 2020 alleviated pressure on Bharti Airtel’s balance sheet resulting from high regulatory dues obligations. The company says it is committed to an investment-grade rating. It raised about $7.6 billion in equity through a rights issue and the sale of equity in its African subsidiary, Airtel Africa Plc, in last 18 months.
"We estimate Bharti's consolidated Ebitda will increase by 20-25 percent a year in FY20 and FY21 due to easing competition in the Indian wireless market and continued strong growth in its African markets and Indian enterprise segment," Fitch Ratings said.
The ratings agency said Bharti Airtel is poised to gain at least 30 million subscribers from Vodafone Idea Ltd. in FY21. "We believe that Bharti and Jio will gain market share, given Vodafone Idea has limited financial flexibility to raise at least $6 billion in debt to pay regulatory dues in the short term," it said.
Vodafone Idea is struggling to improve its Ebitda amid a rapidly shrinking subscriber base and significantly high leverage. The company's chairman, Kumar Mangalam Birla has publicly stated that it may shut down if it does not receive any relief on regulatory dues from the Supreme Court.
On Thursday, Bhari Airtel shares rose 0.22 percent to Rs 544.60 apiece on the NSE while the benchmark Nifty 50 fell 0.37 percent to end the day at 12,080.85 points.