ICRA has revised the long-term rating assigned to Rs. 2250 crore1 bank lines of Bharti Airtel from [ICRA]AAA (pronounced ICRA triple A) to [ICRA]AA+ (pronounced ICRA double A plus).
ICRA has also revised the Issuer Rating for the company from IrAAA (pronounced I R triple A) to IrAA+ (pronounced I R double A plus). The outlook on the above ratings has been revised from ‘Negative’ to ‘Stable’. The short term rating for the Rs. 250 crore bank lines of the company has been reaffirmed at [ICRA]A1+ (pronounced ICRA A one plus).
The rating revision takes into account the lower than anticipated profitability in its core operations (including in the African business) as well as lower than anticipated pace of deleveraging, mainly due to non materialization of the planed infusion of equity funds, because of which the company’s capital structure and leverage indicators continue to remain adverse for the rating category.
The net debt in dollar terms reduced by 5.3% from $13,427 million as on March 31, 2011 to $12,714 million as on March 31, 2012. Further, with substantial forex depreciation, in rupee terms, the gearing stands at 1.29x and net debt/EBITDA is 2.75 times for the year endedMarch 2012. The ratings also take into consideration Bharti Airtel’s exposure to regulatory uncertainty in India, especially with regard to levy of one time spectrum fee, spectrum re-farming, availability and pricing of spectrum across different frequency bands.
The Africa operations of the company (which contributed 28% to consolidated revenue and 22% to consolidated EBITDA in FY2012) have witnessed improvement in profitability (operating margins improved from 21.8% in FY2011 to 26.6% in FY2012), on the back of subscriber additions and cost-reduction initiatives undertaken by the company. Nevertheless, performance of Africa operations is lower than levels estimated earlier.
While the company continues to generate significant operational free cash flows, however given the sizeable capex plan of the company for the next few years (estimated $ 3.1-3.2 billion for FY2013 for India and Africa combined), significant reduction in debt through organic means appears challenging. ICRA also takes note of the fact that the company’s management is looking at various fund-raising options to de-leverage its balance sheet. However, a higher than anticipated impact due to regulatory developments, especially in light of TRAI's April 2012 recommendations on spectrum pricing will be a key rating sensitivity.
The company also continues to remain exposed to foreign currency exposure risk given that a sizeable portion of debt is US Dollar denominated and company’s significant amount of cash flows are rupee denominated. However, ICRA takes note of the elongated maturity profile of the debt and company’s financial flexibility, as demonstrated by its ability to tie-up foreign currency debt finances to meet maturing liabilities.
The ratings continue to derive comfort from Bharti Airtel’s integrated telecommunications operations, its diversified presence across geographies and business verticals, economies of scale with presence in large telecom markets like India and Africa, its pan-India network presence, market leadership position in the domestic mobile services market (19.9% market share), and Singapore Telecommunications Limited’s (rated Aa2(stable) by Moody’s Investor Services) 32.25% effective ownership in the company.