Fitch Ratings takes Bharti Airtel off ‘watch negative’

Fitch Ratings on Thursday said it has taken Bharti Airtel off ‘watch negative’ and affirmed the telecom operator’s long-term foreign currency issuer default rating at ‘BBB-’ with a stable outlook.

“The Stable Outlook reflects our view that an equity injection of USD 2 billion in January 2020 and EBITDA growth for the financial year ending March 2020 (FY20) and FY21 will be more than sufficient to offset the increase in debt to pay regulatory dues of up to USD 4.9 billion, which stem from a dispute over adjusted gross revenue (AGR),” the rating agency said in a statement.

Bharti paid ₹10,000 crore on February 17 to the Department of Telecommunications (DoT) after the Supreme Court rejected telcos’ petition to ascertain with the DoT the amount and timing of payment of regulatory dues related to the AGR dispute. “Bharti’s management estimates the regulatory dues will not exceed the provision amount of USD 4.9 billion,” it said.

The Supreme Court’s original ruling in October led the DoT to seek hefty unpaid dues on licence fees and spectrum-usage charges from telcos. The DoT demand relates to a 14-year-old dispute regarding the definition of AGR, which the Supreme Court agreed should include all kinds of income generated by the telcos. “The Rating Watch Negative is removed from all the ratings,” Fitch said.

It estimated that funds from operations (FFO) adjusted net leverage will improve to 2.3-2.4 times in FY20 and to around 2.0x in FY21 - excluding USD 6.3 billion in deferred spectrum costs - below 2.5 times, the threshold above which it may consider negative rating action.

The USD 2 billion (over ₹14,000 crore) equity injection alleviated pressure on the balance sheet resulting from high regulatory dues obligations and the company says it is committed to an investment-grade rating. It raised about USD 7.6 billion in equity through a rights issue and the sale of equity in its African subsidiary, Airtel Africa Plc, in last 18 months.

“We estimate Bharti’s consolidated EBITDA will increase by 20-25 per cent a year in FY20 and FY21 due to easing competition in the Indian wireless market and continued strong growth in its African markets and Indian enterprise segment,” Fitch said.

The rating agency said Bharti is poised to gain at least 30 million subscribers from Vodafone Idea in FY21. “We believe that Bharti and Jio will gain market share, given Vodafone Idea has limited financial flexibility to raise at least USD 6 billion in debt to pay regulatory dues in the short term,” it said.

Vodafone Idea is struggling to improve its EBITDA amid a rapidly shrinking subscriber base and significantly high leverage. The company’s chairman publicly stated that it may shut down if it does not receive any relief on regulatory dues from the Supreme Court.