S&P says Airtel ratings could be affirmed if debt improves beyond 20%
2 min read . Updated: 12 Feb 2020, 05:45 PM IST- At the end of 31 December, net debt of Airtel stood at ₹1.14 trillion
- Company’s current liabilities came at ₹1.45 trillion
NEW DELHI : S&P Global Ratings on Wednesday said that it would affirm Bharti Airtel Limited's ratings if the company is able to cut down its debt by 20% before March next year.
“We could affirm the ratings if Bharti Airtel's efforts to withstand the impact of the litigation and other developments help its FFO-to-debt ratio (FFO stands for fund flow from operations) to recover to well above 20% by the end of fiscal 2021. Significant relief from the DoT or the Supreme Court could result in such a scenario," S&P said in a statement.
The ratings agency has kept Bharti Airtel on CreditWatch ‘negative’ as it looks to mitigate impact of $4.8 billion lawsuit by the department of telecommunications (DoT).
If the telecom giant fails to improve its debt beyond 20% by the end of March 2021, the ratings agency said it could lower Airtel’s rating by one notch.
Bharti Airtel share closed nearly 1% up at ₹539.55 apiece on BSE.
At the end of 31 December, net debt of India’s third largest telecom company by number of subscribers stood at ₹1.14 trillion. Company’s current liabilities came at ₹1.45 trillion.
S&P anticipates that Airtel’s additional adjusted gross revenue (AGR) liabilities or acquisition-related payouts, or rising risk of sizable 5G spectrum auction outgo without sufficient mitigants may lead to such a scenario.
The Supreme Court in January quashed the review petition by Airtel and Vodafone Idea challenging its 24 October order that had asked telecom operators to pay more than ₹1 trillion in AGR dues to DoT.
The 24 October SC order upheld the government’s definition of revenue, which defined AGR as all revenues of a licence holder including those from non-core telecom operations such as rent, dividend and interest income, in a 14-year-long case. The companies continue to pursue with the SC a modification of its judgement that would give them more time to pay.
Telecom operators had challenged the method adopted by the department of telecommunications to calculate AGR. Licence and spectrum charges of telecom companies are calculated at 8% and 3-5% of AGR, respectively.
“We expect Bharti Airtel to pay Indian rupee (INR) 343 billion (US$4.8 billion), following a court ruling in a lawsuit with the Department of Telecommunications of India (DoT). The company recently completed raising US$2.0 billion in equity and an additional US$1.0 billion in foreign currency convertible bonds to fund the payout. Assuming the US$4.8 billion lawsuit payout, offset by subsequent fundraising and tariff hikes, we expect Bharti Airtel's ratio of funds from operations (FFO) to debt to improve to 23%-25% by the end of fiscal 2021," the ratings agency added.
