Fitch removes Bharti Airtel from watch negative, affirms stable outlook

Fitch Ratings on Thursday affirmed Bharti Airtel's long-term foreign- currency issuer default rating and senior unsecured rating at BBB minus.

The outlook on issuer default rating is stable, it said.

The agency has also affirmed Bharti Airtel International (Netherlands) BV's senior unsecured guaranteed bonds at BBB minus and Network i2i's subordinated perpetual bond at BB. "The rating watch negative is removed from all the ratings," said Fitch.

"The stable outlook reflects our view that an equity injection of 2 billion dollars in January and EBITDA growth for the financial year ending March (FY20) and FY21 will be more than sufficient to offset the increase in debt to pay regulatory dues of up to 4.9 billion dollars, which stem from a dispute over adjusted gross revenue (AGR)," it said.

"We estimate that funds from operations adjusted net leverage will improve to 2.3 to 2.4 times in FY20 and to around 2 times in FY21 -- excluding 6.3 billion dollars in deferred spectrum costs -- below 2.5 times, the threshold above which we may consider negative rating action."

Fitch said Bharti's management estimates the regulatory dues will not exceed the provision amount of 4.9 billion dollars.

"We estimate Bharti's consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) will increase by 20 to 25 per cent a year in FY20 and FY21 due to easing competition in the Indian wireless market and continued strong growth in its African markets and Indian enterprise segment," it said.

Bharti is poised to gain at least 30 million subscribers from Vodafone Idea in FY21. "We believe that Bharti and Jio will gain market share, given Vodafone Idea has limited financial flexibility to raise at least 6 billion dollars in debt to pay regulatory dues in the short term."

Vodafone Idea is struggling to improve its EBITDA amid a rapidly shrinking subscriber base and significantly high leverage. The company's chairman publicly stated that it may shut down if it does not receive any relief on regulatory dues from the Supreme Court.

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