Moody’s down­grades Air­tel to ‘Baa3’ level

Financial Chronicle - - FRONT PAGE - FC BUREAU

MOODY’S In­vestors Ser­vice on Thurs­day placed Bharti Air­tel’s rat­ing on re­view for down­grade, fol­low­ing low lev­els of prof­itabil­ity and ex­pec­ta­tion of weak cash flow.

Moody’s 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 whol­ly­owned sub­sidiary, Bharti Air­tel In­ter­na­tional (Nether­lands) BV, the US-based agency said in a state­ment.

‘Baa3’ is the low­est in­vest­ment-grade bond rat­ings, and any down­grade would put the rat­ing in spec­u­la­tive grade.

Moody’s In­vestors Ser­vice on Thurs­day placed Bharti Air­tel’s rat­ing on re­view for down­grade, fol­low­ing low lev­els of prof­itabil­ity and ex­pec­ta­tion of weak cash flow.

Moody’s 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 US-based agency said in a state­ment.

‘Baa3’ is the low­est in­vest­ment-grade bond rat­ings, and any down­grade would put the rat­ing in spec­u­la­tive grade. “The re­view for down­grade is pri­mar­ily driven by our ex­pec­ta­tion that Bharti’s cash flow gen­er­a­tion will re­main weak and lever­age el­e­vated,” Moody’s VP and se­nior credit of­fi­cer An­nal­isa DiChiara said.

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, it said.

“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,” said DiChiara, who is also Moody’s lead an­a­lyst for Bharti. The re­view on Bharti’s rat­ing will fo­cus on the com­pany’s com­mit­ments and plans to sub­stan­tially re­duce debt lev­els sig­nif­i­cantly over a short pe­riod of time; and plans to turnaround the un­der­ly­ing In­dian mo­bile oper­a­tions.

While 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 said.

At the end of Septem­ber, Bharti’s con­sol­i­dated net debt rose to Rs 1.13 lakh crore, com­pared to Rs 1.02 lakh crore for the pre­vi­ous quar­ter.

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,” it said.

Moody’s said 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.

More­over, any fur­ther de­te­ri­o­ra­tion in its 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, the agency added.

A bruis­ing price war sparked by the en­try of rich­est In­dian Mukesh Am­bani’s Re­liance Jio into the tele­com sec­tor with free voice calls and SMS bun­dled with cheap data has led to pres­sure on mar­gins of in­cum­bents, which have scram­bled to match com­pe­ti­tion.

Bharti Air­tel re­cently re­ported a drop in con­sol­i­dated net profit for the tenth straight quar­ter as losses on main­stay In­dia busi­ness widened due to pric­ing pres­sure from ag­gres­sive com­pe­ti­tion.

Over­all, the con­sol­i­dated net profit of Rs 118.8 crore in July-Septem­ber rep­re­sented a drop of about 65 per cent from Rs 343 crore in the year ago pe­riod.

The loss from In­dia oper­a­tions (be­fore ex­cep­tional items) mounted to Rs 1,646.4 crore in the sec­ond quar­ter of the cur­rent fis­cal com­pared to about Rs 940 crore in the pre­ced­ing three-month pe­riod.

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