Moody's affirms Bharti's Ba1 CFR, revises outlook to stable

Hong Kong, Sep 14 : Moody's Investors Service has affirmed Bharti Airtel Ltd's Ba1 corporate family rating and senior unsecured rating as well as the backed senior unsecured notes issued by its subsidiary Bharti Airtel International (Netherlands) BV.
At the same time, Moody's has changed the rating outlook to stable from negative.
"The ratings affirmation and change in outlook to stable reflect improving profitability at Bharti's core Indian mobile business because of a moderation in industry competition, an increase in its 4G customer base and a tariff hike from December 2019," said Moody's Senior Vice President Annalisa DiChiara.
"The staggered payment resolution related to adjusted gross revenue (AGR) liabilities is also a positive development," she said.
"Overall, the company's operating flexibility is improving and will benefit from a gradual expansion of profitability which will provide a buffer against any material deterioration in credit measures and support a steady deleveraging."
Bharti's Ba1 CFR considers its position as one of the largest telecom service operators globally in terms of subscribers (420 million), its solid market position in India's high-growth mobile market and its large spectrum holdings.
These factors are offset by the company's elevated leverage, and relatively low, although improving, profitability and cash flow.
The competition in the Indian mobile segment has moderated over the last nine months as the price war following Reliance Jio Infocomm Ltd's entry in September 2016 has subsided.
But the pandemic has resulted in some subscriber contraction (1 to 2 per cent) over the last few months which has amplified the impact of natural attrition of subscribers due to SIM card consolidation in India following the tariff hikes implement in December 2019.
However, an increase in the composition of its 4G customers, which comprised nearly 50 per cent of its Indian mobile subscriber base in June, is helping to stabilise profitability.
Moody's expects Bharti's consolidated EBITDA to gradually increase into the Rs 42,500 crore range which will keep its consolidated leverage as measured by debt/EBITDA elevated at around 4x to 4.25x in March 2021.
Moody's said about 30 to 35 per cent of the company's reported debt levels are spectrum liabilities which are not exposed to refinancing risks.
On September 1, the Supreme Court announced the verdict on AGR, allowing staggered payments over a 10-year period to telecom operators.
Moody's views the resolution positively, crystallising Bharti's AGR dues at Rs 43,900 crore and providing a much-awaited resolution stemming from the court's October 2019 judgment.
The staggered AGR payment plan will help alleviate pressure on the company's cash flow. It also means that some of the proceeds Bharti raised earlier this year to fund the AGR liability can instead be applied to debt reduction. And according to management, this is actually already underway.
The outlook is stable and reflects Moody's expectations that Bharti's consolidated leverage will steadily trend towards 3.5x to 4x over the next 6 to 12 months, a level more appropriate for its Ba1 rating.