Bharti Airtel can survive Rs 35,586 crore AGR blow, says Moody's

Sunil Mittal's Bharti Airtel has the financial capacity to withstand a payout of Rs 35,586 crore ($5 billion) towards its statutory adjusted gross revenue (AGR) dues following its recent $3 billion fundraiser that has boosted its liquidity position, Moody's Investors Service said Wednesday.

"Following recent capital-raising, we estimated (Bharti's) cash is over $5 billion, which can be used to fund the final AGR payment," Moody's said in its latest report.

According to the global rating agency, the Rs 35,300 crore cash payment will not cause a significant deterioration in the credit quality of Bharti Airtel, although it will substantially reduce its available cash reserves for Indian operations.

"We estimate leverage of around 5.5x for (Bharti Airtel) India for fiscal year ending March 2020, and consolidated leverage will be around 4.4x, within our tolerance range for the current Ba1 rating," Moody's said.

As per Department of Telecommunications (DoT) estimates, Bharti Airtel owes the government Rs 35,586 crore dues, including licence fee and spectrum usage charge. The company has so far paid Rs 10,000 crore in AGR dues to the telecom department.  Sunil Mittal-led telco will pay the remaining dues after self-assessment of the amount payable to the government.

Also Read: Sunil Mittal meets Telecom Minister Ravi Shankar Prasad amid 'unprecedented' AGR crisis

Airtel on February 17 had said that the company "is in a process of completing the self-assessment exercise expeditiously and will make the balance payment upon completion of the same, before the next date of hearing in the Supreme Court". On February 14, 2020, the Supreme Court had ordered telecom companies to clear their pending licence fees and spectrum usage charges before the next hearing in the AGR matter, that is, March 17.

Moody's also remained optimistic about Bharti Airtel's growth prospects, saying that it had successfully executed a significant amount of capital raising activities over the last 12 months. "Recent capital-raising activities provide additional liquidity to fund the AGR payment," it said.

Also Read: Nobody wants to kill telecom sector: SBI chief on AGR

As on December 31, 2019, the telco had consolidated cash and short term investments of $4.2 billion, with around $2.3 billion held at the Indian operations, excluding Bharti Infratel operations. India accounts for around 75 per cent of Bharti Airtel's debt and 60 per cent of operating profit or EBITDA.

"Debt levels and cash costs are high for this segment and need to be serviced from India's own organic cash flow," Moody's said. "Cash and EBITDA generated at less than wholly-owned subsidiaries is not directly available to service debt at India. As a result, a significant expansion of India's cash flow is required to achieve meaningful debt reduction on a consolidated basis."

On Indian telecom industry, Moody's said that fundamentals in the sector are improving, but uncertainty around the sustainability of the improvement and future cash requirements (including 4G/5G spectrum auction) remains.

As per the DoT estimates, 15 entities owe the government Rs 1.47 lakh crore - Rs 92,642 crore in unpaid licence fee and another Rs 55,054 crore in outstanding spectrum usage charges. Vodafone Idea, which owes over Rs 53,000 crore in AGR dues, has made a total payment of Rs 3,500 crore, while Tata Teleservices has paid Rs 2,197 crore.