Bharti Airtel India ops need recovery, Africa stake sale will cut debt: S&P

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New Delhi, Oct 26: S&P Global Ratings said Bharti Airtel’s sale of a minority stake in its Africa subsidiary will ease some pressure on the rating of the India-based telecom company.
Six global investors, including Warburg Pincus, Temasek, Singtel and SoftBank Group International, have agreed to invest $1.25 billion through a primary equity issuance in Airtel Africa.
“Bharti Airtel’s sale of a minority stake in its Africa subsidiary will ease some pressure on the rating on the India-based telecommunications company. Bharti will use the proceeds of about $1.25 billion to repay of debt,” S&P Global Ratings said in a statement.
Despite the reduction in leverage, S&P said it continues to see risk of a downgrade if the business performance of Bharti does not improve in line with our expectation over the next 12-18 months, such that the ratio of funds from operations to debt remains below 20 per cent, it said.
Bharti continues to prudently manage its leverage by exploring options to monetise assets and reduce debt, in our view, S&P noted. “However, sustainable improvement in the company’s financial position depends on revival of its operating performance in India,” S&P said.
Telecom operator Bharti Airtel reported a 65.4 per cent drop in consolidated net profit at Rs 1.19 billion for the second quarter ended September 2018. Total revenue came in at Rs 204.22 billion for the September quarter, which was 6.2 per cent lower than Rs 217.77 billion notched in the year-ago period.
Its India revenues fell 3.6 per cent year-on-year while the Africa revenues rose 10.8 per cent.
S&P said risks to the improvement in financial position include a competition-induced decline in profitability of its India wireless business as well as a sharp depreciation in the Indian rupee.
“Rupee depreciation will result in a higher translated foreign currency debt and push up Bharti’s capital expenditure. However, the higher translated foreign currency debt will largely be a non-cash adjustment.
S&P said it expects the company’s India wireless business to stabilise and return to growth over the next 12-18 months.
“We believe Bharti will remain a controlling shareholder in its African unit even after the stake-sale announced today and a proposed IPO for the unit. In our view, Bharti could divest about 30 per cent stake in its Africa operations through the stake sale, while the extent of dilution through the IPO is uncertain. We expect no immediate impact on the company’s business position from this deal,” it said.