Bharti Airtel’s proposed acquisition of Telenor India is credit positive, credit rating agency Moody’s Investors Service said on Friday, adding that the buyout will add to Bharti Airtel’s spectrum holdings, subscriber base and revenue, and will expand its market share while providing it further growth opportunities.
Earlier yesterday, Bharti Airtel – India’s largest telecom services operator for now – said that it will acquire Telenor India to further augment its customer base and network, amid the ongoing consolidation in the Indian telecom sector after the entry of Reliance Jio with its free voice and data services.
The acquisition will add Telenor’s about 44 million subscribers to Bharti Airtel’s existing 266 million mobile users in India, taking the total to about 310 million, and will give it another 43.4 MHz spectrum in the precious 1800 MHz band, which could be used to offer the highly sought after 4G services.
Moody’s has a Baa3 stable rating on Bharti Airtel.
“Following the proposed acquisition, Bharti’s (Airtel) spectrum holding will increase in seven circles, and its subscriber market share will increase by around 2% (based on December 2016 figures), enhancing the company’s leading market position in India’s highly competitive mobile telecommunications market, a credit positive, and providing further growth potential in these areas,” Annalisa Di Chiara, a Vice President and Senior Credit Officer at Moody’s, said in a note. The acquisition would augment Bharti Airtel’s share to 26% of total mobile phone services customers in India, and would boost its revenue by about 5% for the 12 months ended December 31, Moody’s added.
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Spectrum of gains
“Importantly, Telenor’s 43.4 MHz spectrum in the liberalised 1800 MHz band across seven circles with 16 years remaining license period will bolster Bharti’s (Airtel) spectrum footprint, service offering and network coverage,” Moody’s note said.
Telenor India operates in seven circles (service areas) with high population concentration, namely Andhra Pradesh, Bihar, Maharashtra, Gujarat, UP (East), UP (West) and Assam, which too could boost growth prospects for Bharti Airtel, which is now looking for the next wave of customers from the under-served hinterland.
“It’s a non-cash deal and although Bharti (Airtel) will take over outstanding spectrum payments and other operational contracts, including tower leases, we do not expect it will have a material impact on the company’s consolidated leverage. Bharti’s adjusted consolidated debt/EBITDA (including deferred spectrum liabilities) was 3.3x as of December 2016,” DiChiara, also Moody’s lead analyst for Bharti, added in the note.
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Bharti Airtel will not make any upfront payment to acquire Telenor India, but instead will take over its outstanding liabilities towards pending spectrum payments and other operational contracts including tower and infrastructure leases, as part of the deal.
Telenor India has total outstanding liabilities of about Rs 3,500 crore, with about Rs 1,650 crore due towards spectrum payouts to the government and other operational contracts. Telenor also has about Rs 1,800 crore in outstanding bank debt, which it has reportedly said that it will service itself to facilitate a ‘clean deal’.