Fitch lowers Bharti Airtel's outlook to negative; retains ratings at 'BBB-'

Global ratings agency Fitch on Monday revised the outlook for Bharti Airtel's Long-Term Foreign-Currency (FC) Issuer Default Rating (IDR) to negative from stable. Fitch retained the telco's ratings at 'BBB-'.

The agency has also affirmed Bharti's senior unsecured rating and Bharti Airtel International (Netherlands) B.V.'s senior unsecured guaranteed bonds at 'BBB-', and Network i2i Limited's subordinated perpetual bond's rating at 'BB'.

The negative outlook follows the revision of the outlook on India's Long-Term Foreign- and Local-Currency IDRs to negative from stable on June 18, 2020.

"Bharti's FC 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 FC obligations," Fitch Rating said.

The agency, however, added that "the change in the outlook does not indicate a change in its view of Bharti's underlying credit profile, but rather reflects the heightened probability that India's country ceiling could be lowered to 'BB+' - which would then constrain Bharti's FC IDR and senior issue ratings".

Also Read: Fitch revises outlook of SBI, PNB, ICICI Bank to negative; affirms long-term ratings

Fitch expects Bharti Airtel's revenue to grow by 10-15 per cent in financial year 2020-21 driven by higher tariff and subscriber addition, despite taking a hit due to the coronavirus pandemic. The growth, however, will be slower than its previous expectations of 20-22 per cent, due to lower data growth and weaker economic activity amid the pandemic in India and Africa.

Bharti's Indian mobile segment's revenue is expected to rise by at least 15-20 per cent on higher tariffs amid easing of competition, as the industry's revenue market share increasingly consolidates with Bharti and Reliance Jio.

Also Read: Fitch Ratings revises India's outlook to negative from stable; retains sovereign rating 'BBB-'

On adjusted gross revenue (AGR) dues, Fitch expects the company to make payment of balance amount of $2.3 billion in FY21. There is a dispute over the amount of AGR dues that Bharti is required to pay to the Department of Telecommunications (DOT). Bharti has paid $2.6 billion to date, compared with DOT's original demand of $4.9 billion. Management assesses the amount should be $1.9 billion, and believes the extra $714 million it paid will be sufficient to cover any potential dispute on the calculation of the dues.

Fitch expects Bharti to generate small positive free cash flow in FY21, excluding the one-time payment for spectrum potentially to be auctioned in FY21, as revenue is likely to decline to around 22-25 per cent  on lower core capital expenditure, 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. Bharti has almost completed the shutdown of its 3G network across India and has redirected its 900MHz and 2100MHz spectrum for 4G usage.

Meanwhile, shares of Bharti Airtel ended Monday's trade at Rs 580.55 apiece, up 1.59 per cent, from previous close on the BSE.

By Chitranjan Kumar