Bharti Airtel ratings has been affirmed with negative outlook, and it has been removed from CreditWatch.
Bharti Airtel’s recent USD 3 billion (about Rs 22,600 crore) fund raising has substantially alleviated pressure due to the Adjusted Gross Revenue (AGR) lawsuit, according to S&P Global Ratings. The India-based telecom operator, however, is yet to demonstrate a longer-term and substantive recovery in performance from the protracted weakness in the country’s telecom sector, it added.
Bharti Airtel ratings has been affirmed with negative outlook, and it has been removed from CreditWatch. “We affirmed the ratings and removed them from CreditWatch because we view Bharti Airtel’s recent USD 2 billion equity raising and USD 1 billion issuance of foreign-currency convertible bonds as having substantially mitigated the impact of the USD 4.8 billion lawsuit,” it said in a statement.
S&P Global Ratings further said it believes that downward pressure on the ratings arising from this event has been lifted. “The negative outlook reflects our view that Bharti Airtel’s FFO-to-debt (funds from operations to debt) ratio has not recovered to well above 20 per cent from a prolonged weakness since fiscal 2018,” it said.
The longer-term implications on the company’s performance owing to substantive tariff hikes in December 2019 remains uncertain. The SIM consolidation is inevitable given price hikes from all three major Indian telecom operators and the multiple SIM cards many subscribers hold, the statement said.
“The pace of improvement in Bharti Airtel’s performance could be slower than we expect, due to potential subscriber loss and the reduction in subscribers’ consumption amid weakening economic conditions,” it said. It expects Bharti Airtel’s adjusted EBITDA (Earnings before Interest Tax Depreciation and Amortisation) to be Rs 450 billion-Rs 470 billion (Rs 45,000 crore-Rs 47,000 crore) in fiscal 2021, up about 15 per cent from the levels it had estimated for fiscal 2020.
“There are budding signs of improvement. Bharti Airtel’s average revenue per user in India was Rs 135 for the third quarter ending December 2019, up from Rs 128 in the previous quarter. However, our economists have revised India’s GDP forecast for 2020 downward to 3.5 per cent from 6.5 per cent.
We believe that consumers may temporarily reduce recharging in the weakening economic environment, given India’s predominantly prepaid market,” S&P Global Ratings said. It has also estimated that Bharti Airtel’s annual capex will decline to Rs 180 billion-Rs 200 billion annually after two to three years of accelerated 4G network deployment in India.
“Our base case does not include spending on 5G spectrum auctions due to the uncertainty in amount and timing. We have also considered Bharti Airtel’s public stance that it will not be participating in 5G auctions likely slated for 2021 because the current reserve prices are too high,” it said.
Participation in such spectrum auctions–even if payments are staggered to preserve cash flows–will be a drag on its leverage. “The negative outlook reflects the risk that Bharti Airtel’s performance improvement may not happen in line with our expectations, and its FFO-to-debt ratio may not recover to well above 20 per cent by fiscal 2021,” it pointed out.
The AGR dues arose after the Supreme Court, in October last year, upheld the government’s position on including revenue from non-core businesses in calculating the annual statutory liabilities of telecom companies, a share of which is paid as licence and spectrum fee to the exchequer.
Last month, the apex court rejected the AGR dues determined by telcos through their self-assessment exercise and ordered them to pay the principal together with interest and penalties. The Department of Telecommunications (DoT), according to its own submission to the apex court recently seeking relief in payment tenure, has put dues of the three companies — Bharti Airtel, Vodafone Idea and Tata Group — at Rs 1.19 lakh crore cumulatively.
The dues estimated by DoT for Bharti Airtel and Telenor was pegged at Rs 43,980 crore, while that of Vodafone Idea was Rs 58,254 crore, and Tata Group of companies at Rs 16,798 crore outlined as ‘total demand of DoT incorporating CAG and special audit as on October 2019’.