Airtel under Moody’s lens for ratings downgrade

Mumbai: Bharti Airtel Ltd’s credit rating was placed under review for a possible downgrade by Moody’s Investors Service on high debt levels and weak cash flow generation.

Moody’s has placed on review for downgrade the Baa3 issuer and senior unsecured rating of Bharti Airtel, and the ratings on the backed senior unsecured notes issued by Bharti’s wholly-owned subsidiary, Bharti Airtel International (Netherlands) BV, Moody’s said in a statement on Thursday.

Baa3 rating means the entity is medium-grade, subject to moderate credit risk and has an acceptable ability to repay short-term obligations, according to Moody’s.

“The review for downgrade is primarily driven by our expectation that Bharti’s cash flow generation will remain weak and leverage elevated,” Annalisa DiChiara, vice president and senior credit officer at Moody’s, said in a statement. 

The review by Moody’s also reflects Bharti Airtel’s low levels of profitability, particularly from its core Indian mobile operations, negative free cash flow and higher debt levels to fund capital spending.

“Because we believe a more rational competitive environment in India’s telecommunications market is unlikely over the next 12-18 months, the review also reflects uncertainty as to whether the company’s profitability, cash flow situation and debt levels can improve sustainably and materially over the same period,” DiChiara added. 

Moody’s said that its review for the downgrade will focus on Bharti Airtel’s plans to reduce debt levels significantly over a short period of time and its plans to turnaround the underlying Indian mobile operations.

“The ratings could be downgraded if the company fails to use proceeds received from its recent pre-IPO (initial public offering) of its African business or its proposed capital-raising activities for debt reduction,” Moody’s said. 

“Moreover, any further deterioration in its operating performance, particularly in the Indian mobile segment, such that earnings and cash flows or revenue market share contracts from current levels, would also lead to a downgrade,” it added.