Fitch Ratings has downgraded the outlook on Bharti Airtel’s long-term foreign-currency (FC) issuer default rating (IDR) to negative from stable affirming it at (BBB-).

According to Fitch, the negative outlook for Airtel follows its outlook revision on India’s long-term foreign-and local-currency IDRs to negative from stable on June 18, 2020.

Fitch added that Airtel’s foreign currency IDR and senior issue ratings are not directly constrained by India’s sovereign rating but cannot exceed the country ceiling (BBB-), which reflects the transfer and convertibility risks associated with foreign currency obligations. It added that should the sovereign IDRs be downgraded, the country ceiling may also be revised down in tandem, which would constrain Airtel’s foreign currency IDRs and senior issue ratings to ‘BB+’

Fitch has also affirmed Airtel’s senior unsecured rating and offshore arm, Bharti Airtel International (Netherlands) BV’s senior unsecured guaranteed bonds at ‘BBB-‘, and Mauritius arm, Network i2i’s subordinated perpetual bond’s rating at ‘BB’.

Fitch though estimates Airtel’s funds from operations (FFO) net leverage in the fiscal ended March 2021 to remain stable at 2.0x-2.2x (FY20: 2.1x), excluding the deferred spectrum liability of $5.8 billion, below the threshold of 2.5x, above which it would take negative rating action.  It also estimates Airtel’s India mobile revenues to rise by at least 15 per cent-20 per cent on higher tariffs amid easing of competition, especially as the industry’s revenue market share increasingly consolidates with Airtel and Reliance Jio.

The global ratings agency also expects Airtel to generate a small positive free cash flow in FY21, excluding one-time payment for spectrum potentially to be auctioned in FY21, as capex/revenue is likely to decline to around 22 per cent-25 per cent (FY20: 26 per cent) on lower core capex, interest costs and the government’s two-year moratorium on the payment of existing spectrum dues. The moratorium will defer about $840 million in each of FY21 and FY22.

It further added that the change in Airtel’s outlook is sovereign-driven and does not indicate a change in the telco’s underlying credit profile. In fact, Fitch estimates a robust growth in revenue and operating income in financial year 2021 (FY21) at around 10per cent-15 per cent, driven by an improvement in the Indian wireless market and continued strong growth in Africa despite the pandemic. However, the growth in revenue and operating income in FY21 will be slower than its previous expectations of 20 per cent-22 percent, due to lower data growth and weaker economic activity amid the ongoing pandemic.