According to S&P Global Ratings, Bharti Airtel’s recent $3 billion fund raising has substantially alleviated pressure due to the adjusted gross revenue (AGR) lawsuit. Further, S&P Global Ratings added that Airtel, however, is yet to demonstrate a longer-term and substantive recovery in performance from the protracted weakness in the Indian telecom sector.
Meanwhile, it has affirmed Bharti Airtel ratings with negative outlook and removed the telco from CreditWatch. The move has been undertaken as the ratings agency views Bharti Airtel’s recent $2 billion equity raising and $1 billion issuance of foreign-currency convertible bonds as having substantially mitigated the impact of the $4.8 billion lawsuit. Further, S&P Global Ratings believes that downward pressure on the ratings arising from this event has been lifted.
In its view, the negative outlook reflects that Bharti Airtel’s funds from operations to debt (FFO-to-debt ) ratio may not recovered to well above 20 per cent by fiscal 2021. However, the longer-term implications on Airtel’s performance owing to substantive tariff hikes in December 2019 remain uncertain.
The SIM consolidation is inevitable given price hikes from all three major Indian telecom operators and the multiple SIM cards many subscribers hold, S&P said. Meanwhile commenting on the subscriber loss, the rating agency added that the pace of improvement in Airtel’s performance could be slower than it expected, due to potential subscriber loss and the reduction in subscribers’ consumption amid weakening economic conditions.
It expects Bharti Airtel’s adjusted earnings before interest tax depreciation and amortisation (EBITDA) to be Rs 450 billion-Rs 470 billion in fiscal 2021, reporting a surge of 15 per cent from estimated values for fiscal 2020. Further, S&P Global Ratings sees budding signs of improvement highlighting that Airtel’s average revenue per user increased to Rs 135 in third-quarter ending December 2019, from Rs 128 in the previous quarter. It has also estimated Airtel’s annual capex to decline to Rs 180 billion-Rs 200 billion annually after two to three years of accelerated 4G network deployment in India.
Further, it added that its base case does not include spending on 5G spectrum auctions due to the uncertainty in amount and timing. The rating agency has also considered Airtel’s public stance of participating in 5G auctions likely slated for 2021 because the current reserve prices are too high.
