Moody’s Investors Service Thursday positioned Bharti Airtel’s rating on review for downgrade, following low ranges of profitability and expectation of weak money stream. Moody’s has positioned on review for downgrade the ‘Baa3’ issuer and senior unsecured rating of Bharti Airtel and the scores on the backed senior unsecured notes issued by Bharti’s wholly-owned subsidiary, Bharti Airtel International (Netherlands) B V, the US-based company mentioned in a press release. ‘Baa3’ is the bottom investment-grade bond scores, 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 VP and Senior Credit Officer Annalisa DiChiara mentioned. The review additionally displays the corporate’s low ranges of profitability, significantly from its core Indian cellular operations, detrimental free money stream and better debt ranges to fund capital spending, it mentioned.
“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,” mentioned DiChiara, who can be Moody’s lead analyst for Bharti.
The review on Bharti’s rating will focus on the corporate’s commitments and plans to considerably cut back debt ranges considerably over a brief time period; and plans to turnaround the underlying Indian cellular operations. While the vast majority of the USD 1.25 billion raised from the pre-IPO of its African enterprise shall be used to scale back debt, leverage will solely enhance marginally, Moody’s mentioned.
At the top of September, Bharti’s consolidated web debt rose to Rs 1.13 lakh crore, in comparison with Rs 1.02 lakh crore for the earlier quarter. Moody’s views positively administration’s plans to interact in additional capital-raising actions – together with asset gross sales – which intention to scale back debt ranges considerably.
“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 mentioned. Moody’s mentioned the scores might be downgraded if the corporate fails to make use of proceeds acquired from its current pre-IPO of its African enterprise or its proposed capital-raising actions for debt discount.
Moreover, any additional deterioration in its working efficiency, significantly within the Indian cellular section, such that earnings and money flows or income market share contracts from present ranges, would additionally result in a downgrade, the company added. A bruising value battle sparked by the entry of richest Indian Mukesh Ambani’s Reliance Jio into the Telecom sector with free voice calls and SMS bundled with low-cost knowledge has led to strain on margins of incumbents, which have scrambled to match competitors.
Bharti Airtel lately reported a drop in consolidated web revenue for the tenth straight quarter as losses on mainstay India enterprise widened as a result of pricing strain from aggressive competitors. Overall, the consolidated web revenue of Rs 118.eight crore in July-September represented a drop of about 65 per cent from Rs 343 crore within the 12 months in the past interval.
The loss from India operations (earlier than distinctive gadgets) mounted to Rs 1,646.four crore within the second quarter of the present fiscal in comparison with about Rs 940 crore within the previous three-month interval. The firm had clocked a web revenue of Rs 649.four crore within the July-September quarter of 2017.