Moody’s Investors Service on Thursday said that it has placed on review for downgrade the Baa3 issuer and senior unsecured rating of Bharti Airtel and the ratings on the backed senior unsecured notes issued by Bharti’s wholly-owned subsidiary, Bharti Airtel International (Netherlands) BV.
The ratings agency said in a statement that the review will focus on the company’s commitments and plans to substantially reduce debt levels significantly over a short period of time; and plans to turn around the underlying Indian mobile operations.
The ratings could be downgraded if the company fails to use proceeds received from its recent pre-IPO of its African business or its proposed capital-raising activities for debt reduction, it said.
Any further deterioration in Bharti’s operating performance, particularly in the Indian mobile segment, such that earnings and cash flows or revenue market share contracts from current levels, would also lead to a downgrade, Moody’s added. “The review for downgrade is primarily driven by our expectation that Bharti’s cash flow generation will remain weak and leverage elevated,” Annalisa DiChiara, a Moody’s vice-president and senior credit officer, said.
The Moody’s statement said that the review also reflects the company’s low levels of profitability, particularly from its core Indian mobile operations, negative free cash flow and higher debt levels to fund capital spending.
“Because we believe a more rational competitive environment in India’s telecommunications market is unlikely over the next 12-18 months, the review also reflects uncertainty as to whether the company’s profitability, cash flow situation and debt levels can improve sustainably and materially over the same period,” DiChiara, who’s also Moody’s lead analyst for Bharti, said.
As on September 30, 2018, Bharti’s consolidated adjusted debt/Ebitda was around 4.5 times.
While Moody’s expects that the majority of the $1.25 billion raised from the pre-IPO of its African business will be used to reduce debt, leverage will only improve marginally. “Moody’s views positively management’s plans to engage in further capital-raising activities — including asset sales — which aim to reduce debt levels significantly. However, Bharti is becoming increasingly dependent on a significant turnaround of the underlying Indian operations to ensure a sustainable level of financial health supportive of an investment grade rating,” the statement said.