redit rating agency Moody's investor service maintained its negative outlook on Bharti Airtel despite sale of its 4.49 per cent stake in Bharti Infatel for Rs 3,325 crore to investors and fund managers.
Credit rating agency Moody’s investor service maintained its negative outlook on Bharti Airtel despite sale of its 4.49 per cent stake in Bharti Infatel for Rs 3,325 crore to investors and fund managers. The agency expects Bharti Airtel’s margins to remain under pressure over next one to two years because of increase in tariff competition besides reduction in lower mobile call connection charges to six paise from 14 paise levied earlier.
In longer term, Moody’s expect Bharti to benefit from consolidation and pricing stabilisation in the telecom market. “On November 14, Bharti Airtel Ltd (Bharti, Baa3 negative) announced that it completed the sale of around 83 million shares…The transaction is credit positive as it is in line with management’s commitment to strengthen its balance sheet and reduce debt. However, there is no immediate impact on Bharti’s ratings and outlook,” Moody’s said in a statement. The international credit rating agency said that even if all the proceeds from the deal is put for debt reduction its cash flow to debt ration will improve only marginally.
Bharti Airtel’s net debt was Rs 91,480 crore at the end of September 2017. Since March 2017, Bharti has divested 18.49 per cent of its stake in Infratel for a total of USD 1.86 billion which has been used for debt reduction. Bharti now holds 53.51 per cent stake in Infratel after the last round of stake sale. Moody’s said Bharti has used stake sale proceeds to pay down a significant portion of debt. “However, Bharti’s profitability has contracted over the last 12 months as intense price competition plagues the industry following the launch of services by Reliance Jio Infocomm Ltd. This situation has muted the positive effect on Bharti’s leverage metrics,” the agency said.
It said over the next 12 months heightened competition, revamping of pricing plans and ongoing pricing pressures to persist in the Indian telecom sector will impact Bharti’s operating performance.
“In addition, lower interconnect usage charges, implemented on October 1, 2017, will have a negative impact on Bharti’s profitability over the next 12-24 months,” Moody’s said.