Moody’s Places Bharti Airtel’s Ratings On Review For Downgrade
Bharti’s cash flow generation will remain weak and leverage elevated, according to Moody's.
Moody's Investors Service placed Bharti Airtel Ltd.’s rating on review for downgrade, following low levels of profitability and expectations of weak cash flow.
The Baa3 issuer and senior unsecured rating of the company has been placed on review for a cut, the U.S.-based agency said in a statement on Thursday. Baa3 is the lowest investment-grade bond ratings, and any downgrade would put the rating in speculative grade.
"The review for downgrade is primarily driven by our expectation that Bharti's cash flow generation will remain weak and leverage elevated," Moody's Vice President and Senior Credit Officer Annalisa DiChiara said.
The review also reflects the company's low levels of profitability, particularly from its core Indian mobile operations, negative free cash flow and higher debt levels to fund capital spending, it said.
Because we believe a more rational competitive environment in India’s telecommunications market is unlikely over the next 12-18 months, the review also reflects uncertainty as to whether the company’s profitability, cash flow situation and debt levels can improve sustainably and materially over the same period.Annalisa DiChiara, VP, Moody’s
The review on Bharti's rating will focus on the company's commitments and plans to substantially reduce debt levels significantly over a short period and plans to turnaround the underlying Indian mobile operations.
While the majority of the $1.25 billion raised from the pre-IPO of its African business will be used to reduce debt, leverage will only improve marginally, Moody's said.
At the end of September, Bharti's consolidated net debt rose to Rs 1.13 lakh crore, compared to Rs 1.02 lakh crore for the previous quarter.
Moody's views positively management's plans to engage in further capital-raising activities—including asset sales—which aim to reduce debt levels significantly.
“However, Bharti is becoming increasingly dependent on a significant turnaround of the underlying Indian operations to ensure a sustainable level of financial health supportive of an investment grade rating,” it said.
Moody's said the ratings could be downgraded if the company fails to use proceeds received from its recent pre-IPO of its African business or its proposed capital-raising activities for debt reduction.
Moreover, any further deterioration in its operating performance, particularly in the Indian mobile segment, such that earnings and cash flows or revenue market share contracts from current levels, would also lead to a downgrade, the agency said.
A bruising price war sparked by the entry of billionaire Mukesh Ambani's Reliance Jio Infocomm Ltd. in the telecom sector with free voice calls and SMSes bundled with cheap data has led to pressure on margins of incumbents, which have scrambled to match competition.