Bharti Airtel's fundraise to alleviate AGR lawsuit stress: S&P

NEW DELHI: Bharti Airtel's capital raise of up to $3 billion (nearly Rs 22,000 crore) is expected to substantially alleviate financial pressure following the Supreme Court's adjusted gross revenue (AGR) ruling back in October 2019, a New York-based financial services firm Tuesday said.

"We now have greater clarity on Bharti Airtel's payout related to its $4.8 billion lawsuit and believe that the company's $3 billion capital raising has substantially alleviated pressure due to the lawsuit," S&P Global in a statement said.

Sunil Mittal-driven telco has recently raised $2 billion through a QIP at Rs 445 per share, and an additional fund of $1 billion was raised through an issue of foreign currency convertible bonds (FCCB).


The foreign currency bonds were issued at a coupon of 1.5% per annum that would mature in 2025.

Following the QIP or Qualified Institutional Placement issue, Bharti Airtel’s promoter group holding fell from 62.70% to 58.98%.

"We affirmed the ratings and removed them from credit watch because we view Bharti Airtel's recent $2 billion equity raising and $1 billion issuances of foreign-currency convertible bonds as having substantially mitigated the impact of the $4.8 billion lawsuit," the firm said.

In October last, India's top court directed telecom carriers to pay their outstanding to the Department of Telecommunications (DoT) after a long-drawn legal battle based on the interpretation of AGR.

Vodafone Idea has the maximum exposure of close to Rs 53,000 crore followed by Bharti Airtel's Rs 35,500 crore.

Meanwhile, Mittal, in the due course has paid nearly Rs 18,000 crore to the government.

However, the telco, according to S&P, is yet to demonstrate a longer-term and substantive recovery in performance from the protracted weakness in the country's telecom sector and expects that its ratio of funds from operations (FFO) to debt to remain below our downgrade trigger of 20% for the fiscal year ending March 31, 2020.

The US-based financial research firm believes that Bharti Airtel's performance may not improve in line with its expectations amid weakening economic conditions, and its FFO-to-debt ratio may not recover to well above 20% by fiscal 2021.

"In our view, the longer-term implications on the company's performance owing to substantive tariff hikes in December 2019 remain uncertain," S&P added.

Last December, incumbent service providers including Reliance Jio, Bharti Airtel and Vodafone Idea have marginally increased the tariffs in order to ease out the financial burden, and arrest falling average revenue per user (ARPU).

The financial services company added that the pace of improvement in Bharti Airtel's performance could be slower than expected due to potential subscriber loss and the reduction in subscribers' consumption amid weakening economic conditions.