Moody’s Investors Service on Thursday placed Bharti Airtel’s rating on review for a downgrade, mainly due to expectation of weak cash flow along with low levels of profitability.
“Moody’s has placed on review for downgrade the Baa3 issuer and senior unsecured rating of Bharti Airtel Ltd. and the ratings on the backed senior unsecured notes issued by Bharti’s wholly owned subsidiary, Bharti Airtel International (Netherlands) B.V.,” the ratings agency said in a statement.
Explaining the rationale behind the move, Annalisa DiChiara, a Moody’s vice president and senior credit officer, said it was primarily driven by the expectation that Bharti’s cash flow generation would remain weak and leverage elevated.
The review, Moody’s added, 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.
“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,” Ms. DiChiara added.
The telecom operator, which had posted a decline of over 65% in net profits to ₹119 crore in the July-September 2018 quarter over the year earlier period, did not comment on the issue.
Moody’s said the review would focus on the company’s commitments and plans to substantially reduce debt levels significantly over a short period of time and plans to turnaround the underlying Indian mobile operations.
“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,” it said, adding that 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.
Additionally, while it expects that the majority of the $1.25 billion raised from the pre-IPO of Bharti’s African business would be used to reduce debt, leverage would only improve marginally.
Airtel Africa, a subsidiary of Bharti Airtel, last month had raised $1.25 billion from six global investors, including Warburg Pincus, Temasek, Singtel and SoftBank Group International, through a primary equity issuance in the company. The funds, it had said, would be used to reduce the company’s debt of about $5 billion as well as for growth of the African operations.
However, Moody’s added that 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.
