Airtel under Moody’s lens for ratings downgrade
Bharti Airtel Ltd’s credit rating was placed under review for a possible downgrade by Moody’s Investors Service on high debt levels and weak cash flow generation.
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, Moody’s said in a statement on Thursday.
Baa3 rating means the entity is medium-grade, subject to moderate credit risk and has an acceptable ability to repay short-term obligations, according to Moody’s Investors Service.
“The review for downgrade is primarily driven by our expectation that Bharti’s cash flow generation will remain weak and leverage elevated,” Annalisa Dichiara, vice president and senior credit officer at Moody’s, said in a statement.
The review by Moody’s also reflects Bharti Airtel’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 added.
Moody’s said that its review for the downgrade will focus on Bharti Airtel’s plans to reduce debt levels significantly over a short period of time and its plans to turnaround the underlying Indian mobile operations.
“The ratings could be downgraded if the company fails to use proceeds received from its recent pre-ipo (initial public offering) of its African business or its proposed capital-raising activities for debt reduction,” Moody’s said.
Billionaire Dilip Shanghvi’s Sun Petrochemicals Pvt. Ltd is planning to enter the power generation business, two company executives aware of the development said.
Sun Petrochemicals through its affiliate Sun Oil and Natural Gas is already into oil and gas exploration and production activities in India. “While exploration and production is doing fine for us, development or generation of power is another segment we think we can have a significant presence in,” a Sun Petrochemicals executive, one of the two people cited above, said on the condition of anonymity.
The company did not respond to an email sent on 6 November.
Shanghvi, the controlling shareholder of India’s largest drug maker Sun Pharmaceutical Industries Ltd, through his family and associates owns a 19% stake in Suzlon Energy Ltd, a leading wind turbine maker. While Suzlon promoters own 20% of the company, 5% is with lenders and the rest with institutional and retail investors.
Sun Petrochemicals was founded in 1999 in a partnership with the erstwhile Indian Petrochemicals Corp. Ltd (IPCL), now part of Reliance Industries Ltd (RIL), to manufacture acetylene carbon black. Acetylene carbon black is used in batteries, semiconductive rubber and polymer compounds, conductive tapes, curing bladders for tyres and other conductive applications.
Shanghvi entered the oil and gas segment in March 2015 when it acquired two oil and gas fields in Gujarat, Baola, and Modhera, from Interlink Petroleum. Both blocks were awarded in round one of bidding of the New Exploration Licensing Policy.
Telecom operators, including Bharti Airtel, Reliance Jio and Vodafone Idea Ltd, have informed the telecom department about their readiness to conduct proof of concept for the new “alternate digital KYC (knowyour-customer) process” at two locations, as stipulated.
The Department of Telecom (DOT) has also issued the details of the procedure and modalities to be followed by telecom operators for issuing new mobile connections using the alternate digital KYC process.
According to a DOT circular dated 6 November, Bharti Air-
In its nearly four years of existence, Sun Oil and Natural Gas has bought stakes in five hydrocarbon blocks. This July, it acquired 70% and 30% stake, respectively, from Reliance Industries and BP India, in Guj- arat’s Cambay Basin block for an undis- closed amount. Reliance was the operator of the block and had won it in 2005 in an auction.
In August, Sun Oil and Natural Gas bid for the assets of debt-ridden Assam Co. India Ltd, the country’s oldest tea company, which also has a presence in infrastructure.
In December 2016, Sun Oil bought a 33.3% stake in Hazira oil and gas field from Canada’s Niko Resources Ltd and was in talks to buy the rest from Gujarat State Petroleum Corp. Ltd. “Sun Oil and Natural Gas wants to be the operator in whichever block it is. That is the reason the firm has been acquiring 100% stake in all the blocks.
It is aware of the multiple approvals a company has to take in case of partnerships and it wants to avoid that situation which leads to delay in work in most cases,” said the second executive, also requesting anonymity.
That explains Sun Oil and Natural Gas’s invitation to prospective buyers to purchase crude oil from the Cambay basin block, that it acquired three months ago.
“Field is under transfer to Sun Petro and production is likely to commence from April. Crude oil production to start with maybe around 1,000 barrels of oil per day (bpd) and peak production maybe 3,000bpd. Sun Petro is operator of field with 100% participating interest,” Sun Oil and Natural Gas says on its website.
RIL held 100% participating interest in the Cambay basin block (CB-10) before farming out 30% to BP India in 2011. RIL had made its first oil find in the block in 2010. The block is spread across 635 sq. km.
Sun Oil and Natural Gas has around 70 employees and plans to take the headcount to over 100, the first executive added.