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Rating Action:

Moody's affirms Bharti's Baa3 ratings; outlook negative

26 Apr 2018

Hong Kong, April 26, 2018 -- Moody's Investors Service has affirmed Bharti Airtel Ltd.'s (Bharti) Baa3 issuer rating and senior unsecured debt ratings, as well as the Baa3 ratings on the senior unsecured notes issued by Bharti Airtel International (Netherlands) B.V., which are irrevocably and unconditionally guaranteed by Bharti.

The outlook on the ratings is negative.

RATINGS RATIONALE

"The affirmation of Bharti's Baa3 rating and negative outlook recognizes that the company's leverage metrics remain elevated as profitability continues to be under pressure," says Annalisa Di Chiara, a Moody's Vice President and Senior Credit Officer.

Bharti reported year-over-year (yoy) contraction in EBITDA from its Indian mobile services at year-end March 2018, as its average revenue per user (ARPU) fell to INR116 for the quarter ended 31 March 2018 (4QFY2018) from INR189 during 4QFY2017.

Although the EBITDA from its African operations increased by 37% over the same period, this was insufficient to mitigate the decline in the Indian mobile services segment. As a result Bharti's consolidated EBITDA contracted 12% yoy and adjusted debt/EBITDA stood around 3.8x at 31 March 2018.

As we expect pricing pressures to persist over the next 12 months in the Indian mobile services segment, Bharti's ability to delever to a level commensurate with its Baa3 rating requires more significant inorganic measures, including a further sell-down of its stake in Bharti Infratel Ltd ( Bharti Infratel).

"To that end, we believe the recently announced merger of Bharti Infratel and Indus Towers provides a path for significant debt reduction with the possibility of an eventual sale of its stake in a larger business over the next 12-15 months," adds Di Chiara, also Moody's Lead Analyst for Bharti.

The combined entity -- Indus Towers -- will create a pan-Indian tower company with over 163,000 towers and operating across 22 telecom service areas. It will also establish the largest tower company in the world outside of China.

Following the merger, Bharti is expected to have a 33.8%-37.2% stake in Indus Towers. Based on the company's announcement, the equity value of the combined entity is estimated at USD14.6 billion, making Bharti's stake worth around USD4.9-USD5.4 billion, and thus providing significant potential for debt reduction within the next 12-15 months.

Furthermore, given the improving financial position of the African operations, it is Moody's expectation that Bharti will consider options to monetize a part of its stake in that operation as it focuses on measures to reduce consolidated leverage.

The negative outlook reflects the company's high leverage levels with adjusted debt/EBITDA of around 3.8x on a consolidated basis at year-end March 2018 -- and even higher when deconsolidating Bharti Infratel - which remains well above the downward trigger levels.

Demonstrated progress towards achieving debt reduction -- such that adjusted leverage is likely to trend below 3.5x within 12-15 months -- is necessary for Bharti to maintain its investment grade rating.

The ratings are likely to be downgraded within the next 6-12 months if heightened competition persists in its Indian wireless business, such that consolidated EBITDA or margins deteriorate further from current levels.

We would also view negatively any changes from our expectations of management's plans to execute inorganic deleveraging.

Upwards ratings pressure is unlikely, given the negative outlook. However, the outlook could return to stable if Bharti's overall credit profile strengthens, such that adjusted debt/EBITDA is sustained at, or below, 3.0x, and the Indian mobile market shows signs of stabilization and/or improvement.

The principal methodology used in these ratings was Telecommunications Service Providers published in January 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Founded in 1994, Bharti Airtel Ltd. is the third-largest telecom service provider globally, based on total number of subscribers. As of March 2018, it had 413.8 million customers across operations in 16 countries across South Asia and Africa. Bharti listed on the Bombay Stock Exchange and National Stock Exchange in 2002.

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For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Annalisa Di Chiara
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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