Moody’s Investors Service on Tuesday downgraded Bharti Airtel’s rating on uncertainty over improvement in the telecom operator’s revenue and profitability amid the intense competition in the Indian market.
The agency, which had in November placed Airtel’s rating under review for downgrade, has downgraded the company’s rating from Baa3 to Ba1, which is s non-investment grade rating. It added that the ratings outlook was negative.
“Moody’s has downgraded to Ba1 from Baa3, the senior unsecured rating for Bharti Airtel Ltd. [Bharti] as well as the backed senior unsecured notes issued by Bharti’s wholly owned subsidiary, Bharti Airtel Int’l (Netherlands) B.V.,” it said in a statement.
Annalisa DiChiara, a Moody’s vice-president and senior credit officer, said the downgrade reflected uncertainty as to whether or not the company’s profitability, cash flow situation and debt levels could improve sustainably and materially, given the competitive dynamics in the Indian telecom market. The agency pointed out that Bharti had reported an EBITDA of ₹265 billion for the 12 months ending December 31, representing a 15.5% year-over-year contraction. Additionally, the profitability of its core Indian mobile segment, which contributes about 37% of EBITDA, remained low, generating just ₹98 billion over the same period, it said.
“A significant recovery in cash flow from the core Indian mobile segment is needed to strengthen the company’s credit quality and support greater financial flexibility,” Ms. DiChiara, who is also Moody’s lead analyst for Bharti, added.
The agency said that the rating outlook could be stabilised if Bharti strengthens its credit profile with stabilisation of its core Indian mobile and non-mobile services.
‘Businesses strong’
In its response to the stock exchanges, Bharti Airtel said, “Bharti Airtel and its businesses continue to be diversified and strong. While Africa and non-mobile businesses in India exhibit healthy momentum, the continuing trend of robust growth in data volumes in India and also the imminent recovery in voice tariffs will further help overall business, going forward.”
It said that the company’s focus was to maintain an optimum capital structure at all times and enhance financial strength. The company’s capital structure has already benefited from the recent equity infusions in the Africa business as well as in India DTH business, totalling to $1.7 billion.
“We continue to explore other equity driven initiatives, including a planned listing of African operations and also any tower stake sale post the merger of Infratel and Indus,” the company said.
It further pointed out that the company’s Africa debt had already been reduced to $3.5 billion, and the $6 billion of debt in India is under 16-year deferred spectrum payments, the “overall debt situation is already comfortable”.
Following the news, Bharti Airtel’s stocks fell by about 4.5% during the day on the BSE. However, the stock recovered to close 0.41% higher from its previous close at ₹307.85 per share on the BSE.