Bharti Airtel could raise another $3.5 billion (Rs24,500 crore) from the sale of a significant stake in the soon-to-be merged Indus Towers-Bharti Infratel entity, and coupled with the recent rights issue and the IPO of its Africa business, would help bring its debt-to-Ebitda, or leverage, ratio below 3.5 times by March 2020, Moody’s said Friday.
The ratings agency said in a release that Bharti Airtel after the inorganic fundraising steps, Bharti Airtel will “rely more heavily on organic cash flow from the Indian operations to ensure adequate financial flexibility going forward…,” which will help sustain improvement in credit metrics.
“Proceeds from the recent capital-raising activities will strengthen balance sheet and improve cash flows,” the ratings agency said.
Bharti Airtel completed a Rs 25,000 crore ($3.5 billion) rights issue in May and the listing of its African subsidiary, Airtel Africa, which raised $750 million in June.
Assuming that nearly all of the proceeds are used to reduce debt, Moody’s expects consolidated leverage to improve to around 4.2 times from 5.1 times at fiscal year ended March 2019, which will still be above 3.5 times, the threshold for outlook stabilisation.
“Sale of a significant stake in its tower assets would aid further debt reduction. We expect Bharti to ultimately sell a significant stake in the tower company formed from the merger of Infratel and Indus Tower Limited, although it may retain a minority stake,” Moody’s said.
Assuming a premium to Infratel’s average closing price in July, Moody’s estimated Bharti Airtel could raise an additional $3.5 billion of cash, and if proceeds are largely applied to debt reduction, Bharti’s leverage could fall below 3.5x by fiscal year ending March 2020.
In mid-day trade, the Airtel stock was down 0.9% at Rs339.10 on the BSE Friday, while shares in Bharti Infratel were 0.4% lower at Rs261.50.
“Although cash flows will rise as interest costs fall, a meaningful expansion of organic profitability at Bharti’s Indian mobile operations is needed to improve its credit profile. We expect Bharti’s capital spending and network costs to remain high as competition remains intense,” the agency said.
Airtel Africa contributed around 30% of reported consolidated Ebitda in fiscal 2019. But Bharti Airtel’s ownership of Airtel Africa has been diluted to around 55% from 68% following the subsidiary’s IPO.
“While Airtel Africa will continue to be a material contributor to Bharti’s consolidated EBITDA, we expect actual cash flow received from Airtel Africa by way of dividends to be limited over the next 12 months. Excess cash flow at the subsidiary will likely be reinvested in its growing business,” Moody’s said.
Source: Economic Times