New Delhi: Standard and Poor’s (S&P) ratings services put Bharti Airtel Ltd’s long-term credit rating on “CreditWatch with negative implications” following the $10.7 billion (Rs49,755 crore) bid by India’s biggest phone company for Zain Group’s Africa assets.
“The CreditWatch reflects our expectation of a significant deterioration in Bharti’s cash flow protection measures and a weakening of the company’s business risk profile if it acquires Zain Africa,” S&P’s Yasmin Wirjawan said in a press release.
Bharti Airtel, which has been seeking acquisitions outside India to expand into less saturated markets, also needs cash to pay for third generation auctions at home apart from its push into Bangladesh.
Bharti’s shares have slumped following the announcement of the Zain plan.
S&P said Bharti’s “liquidity is adequate” and that it expects the firm will be able to raise funds for the proposed deal. The company’s “business risk profile could weaken because of the macroeconomic and political risks associated with, and the lower profitability of Zain Africa’s operations”, Wirjawan said.
The ratings company said, however, that the proposed acquisition holds the prospect of growth opportunities in a continent that has relatively lower mobile penetration. A combined entity would be able to achieve economies of scale given its position in India and Africa, S&P said.
The watch on the BBB rating “will be resolved following Standard & Poor’s review of the final funding structure of this transaction and its impact on Bharti’s financial risk profile”, S&P said. “We will also evaluate the change in Bharti’s business risk profile given its entry into Africa through this potential acquisition.”
Indian rating agency Crisil Ltd, which is controlled by S&P, also put Bharti’s long-term bank facilities and debt programme on “rating watch with negative implications”, it said in a press release. The acquisition could adversely affect Bharti’s gearing and debt protection indicators over the short term, Crisil said.
“However, in case the deleveraging happens sooner than expected, the rating may not be impacted,” Crisil said. “If the deal does not go through, Crisil will remove the rating from watch and reaffirm the same with a ‘stable’ outlook.”
Bharti Airtel had announced on Monday that it had entered into exclusive discussions with Kuwait-based Zain for the acquisition of its Africa assets. The discussions between Bharti and the Zain Group are expected to conclude by 25 March.
The moves by the rating companies arise from expected changes in the debt profile, a Mumbai-based analyst said on condition of anonymity as he is not authorized to speak to the media. “But even after the significant borrowing, they will still be in a comfortable position,” he said. “Some of the largest firms in the world are also the most leveraged.”