Rating-wary Bharti Airtel to list its Africa unit

BHARTI Airtel is looking to pare $4.6 billion (R58bn) from its net borrowings over the next three years by listing its African unit and potentially selling some stake in its tower business in a bid to safeguard its investment-grade ratings.

A source, asking not to be identified as the information is not yet public, said India’s top wireless operator planned to raise as much as $1.5 billion by listing a quarter of equity in its Africa unit by early 2019 in either London or South Africa.

The parent will also try to sell part of its stake in the $14.6bn tower giant after Bharti Infratel merges with Indus Towers.

The twin deals will help the billionaire Sunil Mittal-controlled carrier improve its balance sheet after net debt rose almost 45 percent to $14.6bn over four years as the company borrowed to buy spectrum and defend its position against disruptive upstart Reliance Jio Infocomm Ltd.

The build-up, which came with an eight-quarter-long stretch of earnings declines, has put Bharti Airtel at risk of a downgrade to junk at both Moody’s Investors Service and S&P Global Ratings.

“We see a high likelihood that Bharti can avoid becoming a fallen angel,” Anthony Leung, a Hong Kong-based senior analyst at Wells Fargo & Co, wrote in a report dated May 7. “We expect a majority, if not all, of Bharti’s tower business to be sold in a year’s time, which will meet the timeline target imposed by Moody’s to keep the credit at Baa3,” which is the lowest investment grade rating.

Pushing Bankers for the listing of Bharti Airtel’s Africa unit will be appointed by September, according to the source. The unit will house about $2.3bn of debt, pushing its enterprise value to $8.3bn, the person said.

A Bharti Airtel spokesperson declined to comment.

The pressure to provide 4G services across India and expand broadband before Jio stirs up this segment too would imply capital spending of about 240bn rupees (R45bn) in the year to March 2019, the person said. The company invested 250bn rupees last fiscal.

S&P Global Ratings put a negative outlook on Bharti Airtel’s BBB- rating on May 3 after “cut-throat pricing” led to weaker-than-expected earnings and given the need for high capital spending.

There was “a one-in-three possibility” of a ratings downgrade in the next 18 months if the financials didn’t improve as expected “or if deleveraging does not materialise”, S&P said in a statement.

Moody’s affirmed the company’s Baa3 rating with a negative outlook on April 26, saying “demonstrated progress” towards debt reduction was necessary to maintain the investment grade. – Bloomberg