Bharti Airtel Ratings Upgraded On Reduced Leverage, Improving Regulations
Published on: 7th Mar 2014
By: Ian Mansfield
India's Bharti Airtel has received a boost after its debt ratings were upgraded by S P to 'BBB ' from 'BB ' and given a stable outlook.
S&P said that it raised the rating to reflect its expectation that Bharti will use its significant free operating cash flows and funds from strategic measures to reduce its leverage to a level that is in line with an "intermediate" financial risk profile. The ratings agency also believes that the regulatory framework for telecommunication companies in India is improving, and this will reduce the uncertainty and ambiguity that Bharti faced in the past few years. Further, they anticipate competition (particularly in the voice segment) to moderate as smaller and weaker players get marginalized due to regulatory developments and cash flow pressures.
S&P continues to assess Bharti's business risk profile as "satisfactory."
They also expect Bharti's financial performance to improve over the next 12-24 months owing to the company's improving operating performance, deleveraging measures, and controlled capital spending.
In February 2014, Bharti acquired licenses for 900 megahertz (MHz) telecom spectrum in three circles and 1800 Mhz in 15 circles for a total of US$3 billion. This price is significantly higher than S&P's earlier estimate and would result in slower deleveraging than our earlier expectations. However, they expect Bharti Airtel to generate free operating cash flows of US$1.5 billion-USD2 billion annually. Further, they anticipate that the company will use funds from strategic measures such as sale of stakes in subsidiaries (such as Bharti Infratel) or non-core assets (such as tower infrastructure) for deleveraging.
Bharti's declining debt also reduces the adverse impact of foreign exchange fluctuations on the company's leverage. About 80% of Bharti's debt is in foreign currency and carries a floating rate. The company's limited hedging and international operations are not thought to provide a full hedge for its debt.
Bharti's business risk profile reflects the company's good market position and better business diversity than peers. Bharti's leading market position in India underpins the rating.
However, the company faces above-average regulatory risks in its key markets, particularly India. Bharti's good market position in Africa is also partly offset by weaker margins there.
Bharti has good access to banks and capital markets in India and abroad, and S&P also believes that the company has greater financial flexibility because of its strategic relationship and significant ownership by Singapore Telecommunications.
The stable outlook reflects expectations that Bharti will maintain its competitive position over the next 12-24 months supported by the improving regulatory framework and moderating competition.