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Moody’s puts Airtel ratings on review for possible downgrade

November 09, 2018
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Moody’s Investors Service has placed Bharti Airtel’s rating on review for a potential downgrade. According to the agency, the review for downgrade is primarily driven by expectations that Airtel’s cash flow generation will remain weak and leverage elevated. The review also reflects the operator’s low levels of profitability, particularly from its core Indian mobile operations, negative free cash flow and higher debt levels to fund capital spending, Moody’s said.

According to Moody’s, the review on Airtel’s rating will focus on the company’s commitments and plans to substantially reduce debt levels significantly over a short period of time and plans to turnaround the underlying Indian mobile operations. The rating agency has placed on review the ‘Baa3’ issuer and senior unsecured rating of Bharti Airtel and the ratings on the backed senior unsecured notes issued by Bharti’s wholly-owned subsidiary, Bharti Airtel International (Netherlands) B V for downgrade. ‘Baa3’ is the lowest investment-grade bond ratings, and any downgrade would put the rating in speculative grade.

The agency believes that a more rational competitive environment in India’s telecommunications market is unlikely over the next 12-18 months. Therefore, the review also reflects uncertainty as to whether the company’s profitability, cash flow situation and debt levels can improve sustainably and materially over the same period. Further, Moody’s is of the view that Airtel is becoming increasingly dependent on a significant turnaround of the underlying Indian operations to ensure a sustainable level of financial health supportive of an investment grade rating.

While the majority of the $1.25 billion raised from the pre-IPO of its African business will be used to reduce debt, leverage will only improve marginally, Moody’s said. The agency is of the view that the ratings could be downgraded if the company fails to use proceeds received from its recent pre-IPO of its African business or its proposed capital-raising activities for debt reduction. However, Moody’s views positively the management’s plans to engage in further capital-raising activities including asset sales, which aim to reduce debt levels significantly.

Meanwhile, any further deterioration in Airtel’s operating performance, particularly in the Indian mobile segment, such that earnings and cash flows or revenue market share reduces from the current levels, would also lead to a downgrade, the agency added.

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