Fitch Ratings has given BBB-/rating watch negative to Bharti Airtel for its proposed US dollar senior unsecured convertible notes which are also placed under rating watch negative (RWN).

Airtel is expected to use the proceeds of the notes to fund its capex or to refinance its debt.

As per Fitch Ratings, the terms and conditions on the proposed notes is similar to that of Airtel’s existing senior unsecured notes, with the only exception being the presence of optional convertible features in the former.

As per the terms of the proposed notes, the holders of these can convert to equity at a conversion price premium from a predetermined stock price, during the life of the notes. However, the issuer does not have an option to convert the notes into equity.

Further, the convertibles will be redeemed in cash at maturity if bondholders do not opt for the conversion.

Fitch has maintained that Airtel’s free cash flow will remain negative during financial year 2019-20 despite tariff hikes. This is because cash flow from operations will be insufficient to fund large capex and moderate dividends of Rs 30 billion-Rs40 billion.