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Bharti Airtel credit rating downgraded to Ba1 by Moody’s

Last week, Bharti Airtel reported a 72 per cent drop in consolidated net income for the three months ended December 2018 at around Rs 86 crore.

Owing to uncertainty around the company's profitability, cash flow situations and debt-levels, Moody's Investors Service Tuesday downgraded the credit rating of India's second largest telecom company Bharti Airtel and the senior unsecured notes issued by its Africa arm. The agency downgraded the ratings on the senior unsecured notes of Bharti Airtel to Ba1 from Baa3.

"At the same time, Moody's has assigned a Ba1 corporate family rating (CFR) to Bharti and withdrawn the company's Baa3 issuer rating. The ratings outlook is negative," a Moody's report said. The negative outlook indicates possibility of further downgrade of rating. "The downgrade reflects uncertainty as to whether or not the company's profitability, cash flow situation and debt levels can improve sustainably and materially, given the competitive dynamics in the Indian telco market," Moody's vice president and senior credit officer, Annalisa DiChiara said.

Last week, Bharti Airtel reported a 72 per cent drop in consolidated net income for the three months ended December 2018 at around Rs 86 crore, amid market turbulence triggered by cut-throat competition in its India operations. The company's financials were bolstered by an exception gain of Rs 1,017 crore due to a change in accounting structure with respect to Airtel Payments Bank. "After accounting for gain of Rs 1,017 crore towards exceptional items (net of tax), the resultant net income for the quarter ended December 31, 2018, came in at Rs 86.2 crore," Airtel said in a statement. Its net income stood at Rs 306 crore in the same period of the previous year.

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Africa has been key to de-leveraging plans of Airtel

Over the last two years, a significant improvement in financial performance of Airtel's Africa business has acted as a cushion to the heavy blows that the company has faced in the India business. The growth reported by the Africa arm is also key to company's de-leveraging plans as it looks to reduce debt levels significantly through asset sales and the secondary IPO of its African operations. Airtel has already raised $1.45 billion from the pre-IPO of its African operations, of which it used around $1 billion to pare its debt on a consolidated basis.

Moody's said that it estimated the profitability of Bharti's Indian mobile segment to remain low over the next several quarters in the absence of a fundamental change in the pricing of mobile services, "together with proportional shift in the composition Bharti's subscriber base to high-end 4G customers". However, it said that the company has taken steps to improve revenues and profitability including its minimum recharge plans.

Pointing towards the concerns with the company's leveraged balance sheet, Moody's noted that while significant level of capital-raising over the near-term is expected to bring down the debt-levels, the weak cash flow generation by the core mobile operations will likely keep the leverage elevated. "The rating outlook could be stabilised if Bharti strengthens its credit profile, with a stabilisation of its core Indian mobile and non-mobile services," the ratings agency said.

"Bharti Airtel and its businesses continue to be persified and strong. While Africa and non-mobile businesses in India exhibit healthy momentum, the continuing trend of robust growth in data volumes in India and also the imminent recovery in voice tariffs will further help overall business going forward," Airtel said in a statement. "Also, the board of the company had recently formed a fund raising committee whose recommendations have been noted by the board and these shall be considered at its meeting convened for 28th February 2019," it added. Airtel's shares traded down in early trade, but erased losses to close 0.41 per cent higher from previous close at Rs 307.85 on the BSE.