Icra downgrades Bharti Airtel’s long-term rating to “AA-“ from “AA”

MUMBAI: Ratings agency Icra downgraded Bharti Airtel Ltd's long-term rating from "AA" to "AA-" citing the recognition of higher than anticipated provision pertaining to the Supreme Court judgement on dues payable towards license fees on adjusted gross revenues (AGR) as well as spectrum usage charge in the latest quarterly results.

It said the ratings continue to remain under watch with negative implications. Separately, it also reaffirmed Bharti Airtel’s commercial paper at “A1+”.

“Although the company has not tied up funds for the same, this liability, if materialises is expected to be funded through a bridge loan, which would result in deterioration in debt coverage metrics in near term,” Icra said in a release.


This provisioning follows the communication from Department on Telecom (DoT) that mandated the operators to pay the license fee and other dues after carrying out their own assessment within timeline stipulated by the Supreme Court.

Moreover, additional provisioning related to indemnities to be paid to certain investors of Airtel Africa is also a credit negative, the ratings agency said.

However, Icra said it noted that the Government of India has appointed a Committee of Secretaries to examine the situation and come out with recommendations for the sector.

As an interim relief, the government has announced deferment of auction installments for fiscal years 2021 and 2022, which is expected to provide cash flow easing to the tune of Rs. 5500 crore per year for the next two years.

Additionally, the company has also filed a review petition with Supreme Court. Telecom companies have announced tariff hikes w.e.f. December 1,that would allow OPBITDA expansion.

“The outcome of these events is expected to resolve the rating watch,” Icra said.

The additional liability comes at a time when the company was making attempts to deleverage its balance sheet which includes a rights issue, IPO in Airtel Africa and raising of funds through perpetual bonds of around Rs. 5,500 crore .
The debt on the books of the company has remained elevated as reflected by gross debt of Rs. 136,579 as on September 30, which has kept the debt coverage indicators under stress as indicated by gross debt/OPBDITA of 3.95 times, annualised for first half of fiscal year 2020.

This has been on account of continued high capex intensity amid relatively low cash flow generation in the past, thereby limiting any scope of organic deleveraging, Icra pointed.

However, the operating environment is witnessing some improvement as reflected by consistent improvement in average revenue per user (ARPU) over the last few quarters, which stood at Rs 128 for quarter ended September from Rs 101 a year ago.

With the announced tariff hikes, the ARPU is expected to improve further going forward, it noted.