Rating agency Icra on Monday downgraded Bharti Airtel Ltd's long-term rating to "AA-" from “AA", attributing the downgrade to the recognition of higher than anticipated provisions following the Supreme Court’s judgement on payment of dues for license fees on adjusted gross revenues (AGR) and spectrum usage charges in the latest quarterly results.
“Although the company has not tied up funds for the same, this liability, if materialises is expected to be funded through a bridge loan, which would result in deterioration in debt coverage metrics in near term," the rating agency said in a release
Icra said ratings continue to remain under watch with negative implications. Ratings on Bharti Airtel’s commercial paper were reaffirmed at “A1+".
The downgrade follows Bharti Airtel’s September quarter results, with the company announcing massive losses for the quarter.
“Moreover, additional provisioning related to indemnities to be paid to certain investors of Airtel Africa is also a credit negative…However, Icra notes that the Government of India has appointed a Committee of Secretaries to examine the situation and come out with recommendations for the sector," the rating agency said.
On 24 October, the Supreme Court ordered telecom companies to pay over ₹92,000 crore in dues and interest to the department of telecommunications (DoT) in a 14-year-long case. The matter pertained to the DoT’s claim that telecom companies had underreported their revenues, paying less levies to the government.
Bharti Airtel Ltd’s has dues around ₹21,682 crore, while Vodafone Idea Ltd will have to cough up ₹28,309 crore. Reliance Jio Infocomm Ltd’s dues are just ₹13 crore. The apex court has asked the companies to make the payments within three months of the judgement. The DoT, in a letter dated 13 November, directed operators to conduct a self-assessment of dues in the wake of the SC verdict.
The SC judgement came at a time when the telecom sector has been under stress due to intense competition and adverse regulatory orders.
On 20 November, in a bid to provide some relief to telecom companies, the Union Cabinet approved a moratorium of two years for spectrum payments. Also, starting next month, all operators, including Vodafone, Airtel, Jio and Bharat Sanchar Nigam Ltd, will raise the prices of their services.
Last week, Bharti Airtel, Vodafone Idea and two other companies filed a petition with the Supreme Court to review its judgement.
“The outcome of these events is expected to resolve the rating watch," Icra said.
The additional liability comes at a time when the company was making attempts to deleverage its balance sheet which includes a rights issue, IPO in Airtel Africa and raising of funds through perpetual bonds of around Rs5,500 crore, it said. The debt on the books of the company has remained elevated as reflected by gross debt of ₹1,365,79 as on 30 September, which has kept the debt coverage indicators under stress.