Bharti Airtel could raise $3.5 billion more from stake sale in merged tower entity: Moody’s

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Published: July 20, 2019 1:02:20 AM

The agency said although cash flows will rise as interest costs fall, a meaningful expansion of organic profitability at Bharti's Indian mobile operations is needed to improve its credit profile.

 

The agency said although cash flows will rise as interest costs fall, a meaningful expansion of organic profitability at Bharti’s Indian mobile operations is needed to improve its credit profile.

Bharti Airtel is expected to raise an additional $3.5 billion of cash through sale of a significant stake in its tower assets, which will allow the company to further reduce its debt and bring its leverage ratio below 3.5 times by March 2020, Moody’s said.

According to the ratings agency, proceeds from recent capital-raising activities will strengthen balance sheet and improve cash flows. The Sunil Bharti Mittal-led company has completed $3.5 billion (`25000 crore) rights issue in May and the listing of its African subsidiary, Airtel Africa, raised $750 million in June.
“We expect Bharti to ultimately sell a significant stake in the tower company formed from the merger of Infratel and Indus Tower Limited, although it may retain a minority stake. Assuming a premium to Infratel’s average closing price in July, we estimate Bharti could raise an additional $3.5 billion of cash,” the agency said.

If proceeds are largely applied to debt reduction, Bharti’s leverage could fall below 3.5x by fiscal 2020, ending in March 2020, it added.
Moody’s said growth in the Indian operations’ organic cash flow is needed to sustain any improvement in credit metrics. “We expect Bharti’s capital spending and network costs to remain high as competition remains intense. Following an eventual tower asset sale and the dilution of its stake in Airtel Africa, Bharti will rely more heavily on organic cash flow from the Indian operations to ensure adequate financial flexibility going forward,” it added.

The agency said although cash flows will rise as interest costs fall, a meaningful expansion of organic profitability at Bharti’s Indian mobile operations is needed to improve its credit profile.

Airtel Africa contributed around 30% of reported consolidated Ebitda in 2019 financial year. Bharti’s ownership of Airtel Africa has been diluted to around 55% from 68% following the subsidiary’s IPO.

“While Airtel Africa will continue to be a material contributor to Bharti’s consolidated Ebitda, we expect actual cash flow received from Airtel Africa by way of dividends to be limited over the next 12 months. Excess cash flow at the subsidiary will likely be reinvested in its growing business,” Moody’s said.

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