S&P: Bharti Airtel upgraded to BBB- From BB+. S&P expect Bhartis financial performance to improve over the next 12-24 months. Standard & Poors Ratings Services said that it had raised its long-term corporate credit rating on India-based telecommunication services provider Bharti Airtel Ltd. to BBB- from BB+. The outlook is stable. At the same time, we raised the long-term issue rating on the US$1.5 billion senior unsecured notes due 2023 and the €1 billion senior unsecured notes due 2018 that Bharti guarantees to BBB- from BB+. We raised the rating to reflect our expectation that Bharti will use its significant free operating cash flows and funds from strategic measures to reduce its leverage to a level that is in line with an intermediate financial risk profile, said Standard & Poors credit analyst Abhishek Dangra. We also believe that the regulatory framework for telecommunication companies in India is improving, and this will reduce the uncertainty and ambiguity that Bharti faced in the past few years. Further, we anticipate competition to moderate as smaller and weaker players get marginalized due to regulatory developments and cash flow pressures. We continue to assess Bhartis business risk profile as satisfactory. S&P expect Bhartis financial performance to improve over the next 12-24 months owing to the companys improving operating performance, deleveraging measures, and controlled capital spending. Bharti acquired spectrum in the February 2014 auction for a price that is significantly higher than our earlier estimate and would result in slower deleveraging than our earlier expectations. However, we expect the company to generate free operating cash flows of US$1.5 billion-US$2 billion annually. Further, we anticipate that the company will use funds from strategic measures for deleveraging. Bhartis declining debt also reduces the adverse impact of foreign exchange fluctuations on the companys leverage. About 80% of Bhartis debt is in foreign currency and carries a floating rate. The companys limited hedging and international operations do not provide a full hedge for its debt, in our opinion. Bhartis business risk profile reflects the companys good market position and better business diversity than peers. Bhartis leading market position in India underpins the rating. However, the company faces above-average regulatory risks in its key markets, particularly India. Bhartis good market position in Africa is also partly offset by weaker margins there. We believe regulatory risks in India are still above-average compared with global markets, despite a significant improvement recently. The February 2104 spectrum auction in India has established a well-defined auction process, which could serve as a model for future renewals. Regulatory uncertainty still persists with issues regarding charges for one-time spectrum fees and restrictions on 3G roaming arrangements. Bhartis EBITDA margins are comparable with global peers. Bhartis margins are lower than those of some Asian peers because of the weak performance of the companys Africa business. We expect Bhartis EBITDA margins to improve over the next 12-24 months. We do not add any contingent liability for a legal suit filed by Econet Wireless Nigeria because the matter is sub judice and courts have not determined the quantum of damages. In our view, Bharti has the financial ability to withstand sovereign stress and still have enough liquidity to honor all its obligations in a timely manner. The stable outlook reflects our expectation that Bharti will maintain its competitive position over the next 12-24 months supported by the improving regulatory framework and moderating competition, said Mr. Dangra. We expect the company to continue to reduce its leverage over the period, resulting in the ratio of funds from operations (FFO) to debt staying above 30% on a sustained basis. We may raise the rating if: (1) regulatory uncertainty in India further diminishes and Bharti improves its competitive position; or (2) we expect the company to significantly improve its EBITDA margins and deleverage, such that its ratio of FFO to debt is above 40% on a sustained basis. We may lower the rating if we expect Bhartis EBITDA margins to fall to less than 30% because of competition or the companys costs related to license renewal, spectrum, or acquisitions being significantly higher than we expected. The ratio of FFO to debt declining significantly below 30% on a sustained basis could trigger a downgrade.
Posted on: Fri, 07 Mar 2014 07:22:32 +0000
Trending Topics
Recently Viewed Topics
© 2015