Bharti Airtel rings up lenders for $3-billion funding to clear AGR dues

Bharti Airtel's internal accruals insufficient to pay the AGR dues of nearly Rs 28,000 crore in the next three months, say sources

Telecom services provider Bharti Airtel has called banks out to raise up to $3 billion (around Rs 21,000 crore)  predominantly to pay the dues on account of adjusted gross revenue (AGR).

A senior executive with a global bank said the obligation to pay the AGR dues as a fallout of the Supreme Court ruling was expected to put huge pressure on the existing resources of the mobile operator.

A Bharti Airtel spokesperson declined to comment on the company’s plans to raise fresh funds from banks. Sources in the company, however, said Bharti Airtel’s internal accruals were insufficient to pay the AGR dues of nearly Rs 28,000 crore in the next three months, as directed by the apex court. “Our free cash flows are not large enough to pay the AGR dues in full in a short timeframe. We will need some additional funding to clear the dues,” said a company executive.

The company reported operating free cash flows of around Rs 5,100 crore during the July-September 2019 quarter. It reported a cash balance of Rs 8,426 crore and gross debt of Rs 1.18 trillion at the end of the second quarter.

The fundraising plans, sources said, depended on the outcome of the review petition that they planned to file in the Supreme Court next week, seeking relief from AGR dues. “Things are very fluid right now and our next plan of action depends on the court reaction to our review petition,” said a source.  

Industry sources said mobile operators were willing to settle for even partial relief from the AGR dues. “If you see a break-up of AGR, it shows interest and penalty are much bigger than the original dues. If the court or the government agrees to waive interest and penalty or make it a deferred payment spread over many years, it will solve the problem for a cash-generating company like Bharti Airtel,” said an analyst.

Bankers say it won’t be very tough for them to make fresh lending to Bharti Airtel given the recent improvement in its operations at the consolidated level and the company’s more-than-adequate market capitalisation. However, additional funds may come at higher costs to compensate for the uptick in perceived risks in the industry, bankers said.

Another public sector bank executive said that though the telecom service operator had sounded out, it was yet to come up with demand for the external commercial borrowing facility.

Last month, Fitch Ratings had placed Bharti Airtel’s ‘BBB-' Long-Term Foreign-Currency Issuer Default Rating (IDR) on Rating Watch Negative (RWN). RWN reflects uncertainty on the amount and timing of unpaid regulatory dues. It came after the Supreme Court ruled on October 24 in favour of the Department of Telecommunication's definition of AGR. This led to the DoT's demand that Bharti shell out unpaid dues on licence fees of $3 billion. There may be another demand of $2.9 billion in unpaid dues on spectrum usage charges, Fitch said.

Fitch estimates Bharti's funds from operations (FFO)-adjusted net leverage could worsen to around 3.1x-3.4x for the financial year ending March 2020 (earlier estimate was 2.0x-2.2x). This excludes $6.3 billion in deferred spectrum costs -- if the company had to pay the entire estimated unpaid dues of $5.9 billion, funded out of debt.

This leverage would be much higher than the 2.5x threshold above which Fitch would consider negative rating action. However, Bharti may be able to partly fund the unpaid dues through a planned stake sale of $2.5-3.5 billion in the combined Bharti Infratel (Infratel) and Indus Tower entity. This is awaiting regulatory approval of the merger.

Telecom firms’ stocks surge

Shares of Bharti Airtel and Vodafone Idea on Friday gained 8.4 per cent and 24.7 per cent, respectively, on expectation of policy measures to alleviate the debt burden on the sector. This came a day after the two posted record losses on account of adjusted gross revenue dues.