Fitch Ratings has placed Indian telecom service operator Bharti Airtel Ltd’s 'BBB-' Long-Term Foreign-Currency Issuer Default Rating (IDR) on Rating Watch Negative (RWN).
The RWN reflects uncertainty on the amount and timing of unpaid regulatory dues, after the Supreme Court ruled on 24 October in favour of the Department of Telecommunication (DoT)'s definition of adjusted gross revenue (AGR).
This led to 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.
The agency has also placed Bharti's and Bharti Airtel International (Netherlands) BV's senior unsecured bonds and Network i2i's subordinated perpetual bond's on RWN.
The resolution of the RWN may take more than six months. It requires clarity on the exact amount and timing of the payment of unpaid dues and whether the government will provide any financial relief to the telecom sector affected by the court ruling, 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 (FY20, earlier estimate of 2.0x-2.2x). This excludes $ 6.3 billion in deferred spectrum costs -- if the company had to pay 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.
However, such a stake sale would lead to cash outflow in the form of tower lease rentals, nullifying any significant leverage benefits.
Bharti has approached the government to seek clarity on the exact amount and relief on the unpaid dues, of which interest and penalties constitute about 75 per cent. Bharti may also seek relief by filing a review petition in the Supreme Court against the judgement.
The management is committed to an investment-grade rating and raised about $5.6 billion in equity via a rights issue and stake sales in Bharti's African subsidiary earlier in 2019, Fitch said.