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Bharti Airtel’s credit risk is as strong as the Indian sovereign now: Nitin Soni, Fitch Ratings

“We have stable outlook as we believe there is going to be a tariff recovery in 2019.”

ET Now|
Updated: Feb 05, 2019, 10.23 AM IST
Nitin Soni-Fitch
At BBB minus, Bharti has an investment grade rating although the headroom is low. India’s sovereign rating is also BBB minus, Nitin Soni, Director, Asian corporates, Fitch Rating, tells ET Now.

Edited excerpts:

What do you think is the reason for this credit rating downgrade on Bharti coming in from Moody’s.

I cannot really comment on the other retail agencies but we have a rating of BBB minus with a stable outlook on Bharti. And our stable outlook is based on our belief that there is going to be a tariff recovery in 2019 in the Indian mobile sector.

Secondly, we believe that Bharti’s management is committed to a BBB minus rating and they would raise money by selling some of their assets including the IPO of the African entity and the stake dilution in the Indus Infratel tower company. That will release some of the pressures on the leverage and on the balance sheet.

Do you think Bharti’s debt, especially the unsecured notes. which are shorter dated debt securities, are at risk?

No. When we say we are at a BBB minus, it is an investment grade rating although the rating headroom is low. As I said before, the company does have a good cash generation ability, given the diversified nature of its operations almost one-third coming from Indian mobile business, one-third from Africa and one third from the other segments in the Indian operations, including tower enterprise and TV and others.

They do have good cash generation. Right now, Indian mobile sector profitability is depressed because of the competition from Reliance Jio but the African operations have been performing well. The EBITDA is going to grow 30% this year. To some extent, the growth in EBITDA from Africa is offsetting the de-growth in the Indian mobile operations but our expectations overall for 2019 is to have a tariff recovery and equity to be raised in terms of planned asset sale at the Bharti Airtel level which would keep the leverage below 2.5 times in FY20.

For a rating agency when they give a junk rating to any paper, does that mean that essentially the asset has risk of defaulting?

No. We do have a rating scale which ranges from AAA all the way to restrictive default and default. A junk rating starts from BB plus and below, going all the way from BB plus, BB, BB minus, and then the single B category. When we rate a company at BB, we are essentially saying that this company’s credit risk is high when we compare it to other peers in the same industry. But Bharti is rated as an investment grade which is BBB minus. It is a relatively good rating because even the Indian sovereign is rated at BBB minus. What we are saying is that Bharti’s credit risk is as strong as the Indian sovereign as of now.

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