S & P Global Ratings on Tuesday assigned BBB negative long-term issue rating to senior unsecured notes that Bharti Airtel Ltd proposes to issue.
At the same time, it assigned BB long-term issue rating to proposed subordinated perpetual securities (PERPS) issued by Network i2i Ltd and guaranteed by Bharti Airtel.
Bharti Airtel will use the proceeds for capital expenditure, repayment of existing debt or any other purpose as allowed by regulations.
The proposed PERPS are similar to the existing PERPS, ranking senior only to Bharti Airtel's equity. They will have five-year resettable coupons starting from 5.25 years with step-ups of 25 basis points after the initial term of 10.25 years and a further 75 basis points after 25.25 years.
"Hence, we consider the PERPS to have an effective maturity of 25.25 years," said S & P."Consequently, we assess the proposed PERPS as having intermediate equity content up to the first reset date at 5.25 years."
This is because the remaining period until its effective maturity will by then be less than 20 years. The terms of the PERPS allow Bharti Airtel to indefinitely defer coupon payments on a cash cumulative basis, subject to restrictions on shareholder distributions.
"We rate the PERPS two notches below the issuer credit rating on Bharti Airtel to reflect the subordination of the notes and the company's ability to voluntarily defer coupon payments."
S & P said the outlook on Bharti Airtel remains negative because the company's deleveraging path has been hampered by regulatory uncertainties and investments that have exceeded expectations.
"On the other hand, earnings growth that is stronger than we anticipated has mitigated immediate ratings downside.
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