India’s leading telco Bharti Airtel will see its debt levels increasing by around $2 billion due to its spectrum wins in the recently concluded auctions, ratings firm Moody's said. The telco has acquired 173.8 Mhz spectrum across three spectrum bands that include 1800 MHz, 2100 MHz and 2300 MHz for a total of Rs 14, 244 crore, in the spectrum sale by the government.
It has spent Rs 35.8 billion ($500 million) towards adding new 4G/3G capabilities in 7 circles, Rs 103.4 billion ($1.5 billion) towards enhancing data capacities in 15 circles, and Rs 3.21billion ($48 million) towards completing some of the existing partial blocks in 4 circles.
"Although Bharti's debt levels will rise by around USD2 billion in conjunction with the funding of its spectrum wins, this amount can be accommodated in the rating for a short time, as cash flow from operations and proceeds from monetization activities are expected to reduce debt levels considerably within the next 6-12 months," said Annalisa DiChiara, a Moody's Vice President and Senior Credit Officer.
The rating agency also expects Bharti to opt for the deferred payment structure, which will minimize the upfront cash outflow and stretch out payments over a 12-year period.
Under this structure, it will make upfront payments of 50%, or around Rs 71 billion ($1.0 billion), which the rating firm expects will be largely debt-financed. The balance of Rs 71 billion ($1.0 billion) will be payable in 10 annual installments after a 2-year moratorium.
In a note released on Wednesday, Moody’s also affirmed Bharti Airtel’s Baa3 issuer rating with a ‘stable’ outlook for Airtel. It said that the higher debt can be “can be accommodated in the rating for a short time, as cash flow from operations and proceeds from monetisation activities are expected to reduce debt levels considerably within the next 6-12 months”.
The telco remains the largest spectrum holder in the industry, and the only mobile operator with 4G and 3G capability in all circles, positioning it for continued growth, despite the rising level of competitive intensity, particularly following Reliance Jio Infocomm’s launch September.
“We estimate Bharti's adjusted leverage, as measured by adjusted debt/EBITDA, will rise into the 3.3x-3.4x range at March 2017 and above our downward trigger level of 3.0x-3.25x. However, we expect management will use cash from operations and monetization opportunities, including investments in subsidiaries, to expedite deleveraging towards 3.0x within the next 6-12 months,” DiChiara, who is also lead analyst for Bharti at Moody’s said.
