‘Pric­ing Power Won’t Re­turn to Sec­tor Soon’ Fitch Rat­ings says Air­tel’s buy­out of Te­lenor’s In­dian ops lat­est sign of a shake­out; re­tains neg­a­tive out­look for tele­com

The Economic Times - - Companies: Pursuit Of Profit - Our Bureau

Mum­bai: Bharti Air­tel’s buy­out of Te­lenor’s In­dian op­er­a­tions is the lat­est sign of a shake­out in the sec­tor af­ter Jio’s en­try spurred in­cum­bents to con­sol­i­date and weaker tel­cos to exit al­to­gether, rat­ings agency Fitch Rat­ings said, warn­ing that even with fewer play­ers, pric­ing power won’t re­turn to the in­dus­try in the short term.

“We re­tain our neg­a­tive out­look on the sec­tor for 2017, as fierce com­pe­ti­tion and ris­ing capex will put pres­sure on most op­er­a­tors in the short term,” the rat­ings firm said in a re­lease Thurs­day. It added that Su­nil Mit­tal-owned Air­tel’s credit pro­file will re­main un­af­fected by the planned ac­qui­si­tion as the ben­e­fits from ad­di­tional spec­trum as­sets will off­set the spec­trum li- abil­i­ties taken over.

Jio’s mas­sive in­vest­ment of $20-25 bil­lion (.`123,000–.`170,000 crore) and of­fer of free voice and data for six months to new sub­scribers have ac­cel­er­ated in­dus­try con­sol­i­da­tion. Fitch said the on-go­ing con­sol­i­da­tion is likely to leave four large op­er­a­tors — Bharti, Jio, the com­bi­na­tion of Voda­fone In­dia and Idea Cel­lu­lar — and the com­bined Re­liance Com­mu­ni­ca­tions and Air­cel.

Voda­fone and Idea are in talks for an equal merger to com­bine spec­trum as­sets, strengthen bal­ance sheets and re­duce cost and capex to com­pete ef­fec­tively. Re­liance Com­mu­ni­ca­tions is also in the process of merg­ing its wire­less op­er­a­tions with Air­cel. “We con­tinue to be­lieve that com­pe­ti­tion will con­tinue to re­main high, and the con­sol­i­da­tion is not likely to re­turn any pric­ing power to the op­er­a­tors in the near term,” said the agency.

Fitch ex­pects Air­tel’s EBITDA for the fi­nan­cial year to March 2017 to be around $5 bil­lion-5.3 bil­lion (FY16: $5 bil­lion) de­spite in­tense com­pe­ti­tion in the In­dian mo­bile mar­ket dur­ing 2HFY17 (ex­clud­ing Te­lenor's op­er­a­tions) given its diver­si­fied busi­ness pro­file. Bharti Air­tel’s African op­er­a­tions ac­count for about15% of EBITDA and its In­dian non-mo­bile busi­ness con­trib­utes 23%.

“We es­ti­mate that Bharti’s FFO-ad­justed net lever­age for FY17 will be around 2.0x (FY16: 1.8x; ex­clud­ing $5 bil­lion de­ferred spec­trum costs) — lower than the thresh­old of 2.5x, above which Fitch may con­sider neg­a­tive rat­ing ac­tion,” the agency said. It added that Bharti could raise funds by mon­etis­ing a part of its 72% stake in its tower en­tity, In­fratel, talks for which are on. Bharti sold 2.9% stake in In­fratel for $310 mil­lion in 2015.

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