Fitch revises Airtel's outlook to negative

Credit ratings agency Fitch today revised the outlook of private telecom operator Bharti Airtel to 'negative' from 'stable' due to risks involved in its African operations.

"Fitch is concerned that ongoing execution risk attached to Bharti's African operations could potentially lead to lower-than-expected performance," the firm said in a statement.

Bharti Airtel, which acquired Zain Group's African operations last year for enterprise value of $10.7 billion, is the world's fifth largest telecom company with presence in 15 countries.

In India, it is the largest private telecom firm in terms of subscribers, with a base of over 162 million customers as on March 31, 2011 as well as revenues -- Rs 35,609.54 crore in 2009-10.

Fitch said Bharti could see an increase in capital expenditure this fiscal as competition intensifies.

"Specific concerns include rising competitive intensity (in certain African markets), operational challenges, higher network operating costs and comparatively low network coverage, which may result in higher-than-expected capex ($800 million) in FY12," it said.

Fitch said Bharti would find it difficult to reduce its net debt, despite likely stronger cash flow, because of regulatory uncertainty and changes in the sector.

On the regulatory front, it said that a number of recommendations are pending for approval with the Department of Telecommunications (DoT), which may have a negative impact on Bharti's cash flow generation ability.

"While recommendations to gradually lower licence fees (from 10% to 6% of revenues) and to relax merger and acquisition guidelines could have a positive impact on Bharti's cash flow generation. Fitch expects greater clarity on these issues once a new telecom policy is released, expected in H2 FY12," it added.

Fitch expects the level of competitive intensity attached to Bharti's Indian operations to be limited in FY12 with tariff pressures likely to ease in the wireless voice segment and result in stability in voice average revenue per minutes (ARPMs).