S&P rates Bharti Airtel credit as stable, investment grade

S&P rates Bharti Airtel credit as stable, investment grade

Mumbai: Global rating agency Standard and Poor’s (S&P) on Thursday raised the credit rating for telecom major Bharti Airtel Ltd to investment grade with a stable outlook on the back of the company’s strong performance. S&P has raised Bharti Airtel’s rating to ‘BBB-,’the lowest investment grade rating from the speculative grade of ‘BB+,’ a statement from the rating agency said.

The rating action reflects company’s stronger than anticipated operating performance and improved cash flow generation supported by greater economies of scale. Despite high capital spending and intense competition, Bharti’s credit measures are projected to remain in the current rating category, the statement added.

“The ratings on Bharti reflect the company’s strong subscriber growth and improved cash flow measures," S&P credit analyst Yasmin Wirjawan said. These strengths are somewhat offset by the intense competition faced by the company and its aggressive expansion plan, with a budgeted capital spending of $3.3 billion (Rs13,002 crore) to $3.5 billion annually in the near term, Wirjawan added.

Bharti’s liquidity is adequate and on 30 September, the telecommunications company had a cash balance of Rs5 billion and Rs11 billion in short-term investments, which are sufficient to cover about Rs10 billion of debt due in one year.

In addition, the company had about Rs63 billion in equipment, payment on which is due in one year, which would be financed by internal cash generation and debt.

However, S&P said the rating could be under pressure if there is deterioration in Bharti’s business risk profile or if its financial profile weakens materially after the company’s high capital spending. On the other hand, the rating could be raised if the company is able to strengthen its leading market position, while maintaining strong financial metrics on a sustainable basis.

In addition, Bharti needs to generate predictable and sustainable positive free operating cash flows, while maintaining adequate liquidity to fund its development projects.

As most of Bharti’s revenue is generated in local currency, the company would need to be able to maintain such financial metrics under an economic stress scenario for its ratings to be above the foreign currency sovereign ratings of India.