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Rating Action:

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

23 May 2017

Hong Kong, May 23, 2017 -- 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.

At the same time, Moody's has changed the outlook on the ratings to negative from stable.

RATINGS RATIONALE

Moody's continues to expect intense price competition over the next several quarters in the Indian telecoms sector, as operators, such as Bharti, implement plans and tariffs to protect and grow their market shares.

This competition will occur even though ongoing and transformative consolidation in the sector and Reliance Jio Infocomm Limited's (RJio, unrated) tariff plan will help stabilize the industry's average revenue per user (ARPU) over the longer term.

"While Bharti recorded 4.3% growth in reported consolidated EBITDA year-over year at 31 March 2017, the effects of intense competition in the India mobile services segment were particularly evident in the fourth quarter, as revenues and reported EBITDA for its India mobile services segment fell 11% and 19%, respectively," says Annalisa Di Chiara, a Moody's Vice President and Senior Credit Officer.

"This was partially offset by the year-over-year EBITDA growth in non-mobile services in India as well as healthy EBITDA growth in Africa," added DiChiara.

In addition, the company's total reported debt at 31 March 2017 was INR1,074 billion, a rise of around 6.9% year-on-year, and largely a result of higher spectrum liabilities (INR439 billion versus INR341 billion at year-end 2016).

"Leverage remained elevated at year-end, resulting in adjusted debt/EBITDA of 3.3x. We expect Bharti's profitability to remain under pressure as competition remains at heightened levels over the near-term; as such, we believe that a permanent reduction in leverage to levels more appropriate for the Baa3 rating -- such that adjusted debt/EBITDA trends to 3.0x by June 2017 -- is unlikely," adds Di Chiara, also Moody's Lead Analyst for Bharti.

For year-end 31 March 2017, the company's Indian mobile services segment contributed around 59% of consolidated revenues and 64% of reported consolidated EBITDA, and remained the key driver of profitability.

Intense competition will persist over the next 12 months as we expect RJio will remain aggressive in acquiring new subscribers and growing the data market. Bharti's ability to expand profitability for its core Indian mobile operations relies on the company retaining its higher ARPU subscribers, while increasing the pace of subscriber acquisitions organically and through acquisitions.

Bharti has been able to demonstrate increasing its revenue market share for its India mobile services from to 33.1% at Dec 2017 from 31.6% as at Dec 2016, according to the Telecom Regulatory Authority of India.

Overall, we expect consolidated adjusted EBITDA to contract around 5% year-over-year, reflecting the competitive pressures existent in the Indian mobile segment and somewhat offset by the stable operating performance of its African operations and its other business segments in India.

As result, we expect Bharti's adjusted debt/EBITDA will increase to 3.5x-3.6x by 31 March 2018. Although, when considering the potential additional 10% stake sale in Bharti Infratel (Infratel, unrated) -- at a similar valuation to its recent stake sale and with proceeds used entirely for debt reduction -- we estimate adjusted debt/EBITDA of 3.4x, which remains at the higher tolerance range for the rating level.

Still the affirmation of Bharti's Baa3 rating continues to reflect the company's leading market position and strong spectrum portfolio, although we remain cautious on operating performance over the next 6-12 months.

The Baa3 rating also reflects the company's execution of and ongoing commitment to debt reduction, as evidenced by a commitment to use the proceeds from any further stake sales in Infratel for debt reduction. The company already used proceeds from a 10.3% stake sale in Infratel stake in March 2017 to reduce debt. Management's commitment to a strong balance sheet remains an integral part of its investment grade rating.

In addition, the company had around INR88 billion in unrestricted cash, investments and receivables (related to the residual portion of tower sale proceeds to be received in coming quarters).

Downward rating pressure could arise if competition intensifies further in any of its key markets, but particularly for the Indian wireless business, such that its key operations and/or subsidiaries report contracting EBITDA or margins above our expectations.

We would seek evidence of this trend with consolidated debt/EBITDA remaining above 3.25x for a sustained period; consolidated retained cash flow/adjusted debt remaining below 20%; or adjusted EBITDA margins falling below 35%. Furthermore, any unexpected adverse regulatory developments in any of Bharti's key markets will also be negative for the rating.

We would also view negatively any event risk associated with a sizeable debt-financed acquisition or other corporate activity that negatively impacts the company's existing or targeted leverage ratios.

Upwards ratings pressure is unlikely, given the negative outlook. However, the outlook could be revised to stable if Bharti's overall credit profile strengthens, such that adjusted debt/EBITDA is sustained at, or below 3.0x.

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 operator globally, based on total number of subscribers. As of March 2017, it had 372 million customers across operations in 17 countries across South Asia and Africa. Bharti listed on the Bombay Stock Exchange and National Stock Exchange in 2002.

REGULATORY DISCLOSURES

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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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

No Related Data.
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