Fitch says removing Bharti Airtel from ratings watch to depend on Supreme Court ruling

Fitch Ratings on Thursday said removing Bharti Airtel Ltd from its Rating Watch Negative (RWN) will depend on the Supreme Court ruling on a review petition filed by telecom companies against being asked to pay backdated statutory dues after considering non-telecom revenues.

Fitch assigned a rating of 'BBB-' to the company's proposed US dollar senior unsecured convertible notes.

"The notes are rated at the same level as Bharti's foreign-currency senior unsecured rating of 'BBB-' and are also placed on RWN," it said in a statement.

The proposed interest-bearing notes can be converted to equity at a conversion price premium from a predetermined stock price, it said adding Bharti will use the proceeds of the notes to fund its capex or to refinance its debt.

"Fitch placed Bharti's ratings on RWN on October 30, 2019, following India's Supreme Court verdict against the country's telcos on the definition of adjusted gross revenue (AGR) on which the incumbent operators, including Bharti, must pay hefty dues to the government.

"The resolution of the RWN, which may take more than six months, requires a Supreme Court's ruling on the review petition subsequently filed by telcos, successful completion of Bharti's planned equity issuance of USD 2 billion and our assessment of the positive impact of EBITDA growth from announced tariff hikes by all telcos in December 2019," it said.

Fitch said Bharti's management has stated that the company is committed to an investment-grade rating and raised about USD 5.6 billion in equity through a rights issue and the sale of equity in its African subsidiary, Airtel Africa Limited, in 2019.

"Management is confident of successfully completing the planned equity injection of USD 2 billion in January 2020," it said. "Bharti may also raise USD 1.7 billion-2.7 billion through a planned stake sale of the combined Bharti Infratel (Infratel) and Indus Tower entity, which is awaiting regulatory approval of the merger. However, deconsolidation of Infratel-Indus would lead to cash outflow for tower lease rentals, nullifying any significant leverage benefits."
"Bharti's free cash flow (FCF) will remain negative during FY20 despite tariff hikes, as cash flow from operations will be insufficient to fund large capex and moderate dividends of Rs 3,000-4,000 crore," it said. "Barring regulatory dues, we expect FY20 capex/revenue to remain high at 34-37 per cent, with forecast capex of around USD 4 billion, as Bharti continues to strengthen its 4G network and fibre infrastructure."