Fitch removes Bharti Airtel from ‘negative watch’; says easing competition in India will help company 

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February 20, 2020 6:01 PM

Credit rating agency Fitch Ratings has removed Bharti Airtel from ‘negative watch’ and has affirmed its long-term foreign currency Issuer Default Rating (IDR) at ‘BBB-’ with a stable outlook.

Bharti Airtel injected $2 billion in equity, which according to Fitch Ratings, alleviated pressure on the balance sheet resulting from the high regulatory-dues obligations.

Credit rating agency Fitch Ratings has removed Bharti Airtel from ‘negative watch’ and has affirmed its long-term foreign currency Issuer Default Rating (IDR) at ‘BBB-’ with a stable outlook. The ratings agency had placed Bharti’s ratings on Rating Watch Negative in October 2019, after the Supreme Court asked telecom companies to pay AGR dues. This comes as a relief for the telecom giant which is staring at dues payment of more than Rs 35,000 crore to the Department of Telecommunications (DoT). Ratings of ‘BBB–’ and higher are considered to be secure, and those of ‘BB+’ and lower are considered to be vulnerable.

“The Stable Outlook reflects our view that an equity injection of USD2 billion in January 2020 and EBITDA growth for the financial year ending March 2020 (FY20) and FY21 will be more than sufficient to offset the increase in debt to pay regulatory dues of up to USD4.9 billion, which stem from a dispute over adjusted gross revenue,” Fitch Ratings said in a press release. Bharti Airtel paid Rs 10,000 crore of its AGR dues to the DoT on Monday. It owes the telecom department more than Rs 35,000 crore.

The ratings agency estimates that funds from operations adjusted net leverage will improve to 2.3-2.4 times in this fiscal to around 2 times in the coming fiscal, excluding $6.3 billion in deferred spectrum costs – below 2.5 times, the threshold above which the rating agency may consider negative rating action. 

Bharti Airtel injected $2 billion in equity, which according to Fitch Ratings, alleviated pressure on the balance sheet resulting from the high regulatory-dues obligations. Among the drivers behind the change in ratings outlook is the positive steps taken by the management of Bharti Airtel, such as raising about $7.6 billion in equity through a rights issue and the sale of equity in its African subsidiary, Airtel Africa Plc, in the last 18 months. Fitch said it estimated EBITDA of Bharti Airtel will increase by 20 per cent – 25 per cent a year in financial year 2020 and financial year 2021 due to easing competition in the Indian wireless market.

Bharti Airtel share price, after gaining on Friday when the Supreme Court took strong note of the non-payment of AGR dues by telecom companies, has dropped close to 3 per cent. The share, however, on Thursday saw gained 0.22 per cent to trade at Rs 544.60. According to a report by The Economic Times, the DoT might ask Bharti Airtel to pay a part of the dues of Videocon as well. Airtel had purchased 25 Mhz of spectrum in the 1800 Mhz band from Videocon. Bharti Airtel Chairman Sunil Bharti Mittal, on Wednesday met the Finance Minister along with Kumar Mangalam Birla to press for relief to the struggling telecom sector.

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