Fitch Ratings’ Nitin Soni explains stable outlook on Bharti Airtel
From a credit perspective, it is good to see they have already set up a benchmark there, says Soni
What do you make of Bharti Airtel Africa IPO? What do you make of the pricing? This is being seen as one of the many avenues that Sunil Mittal is tapping to raise funds and protect his share in the domestic market.
Basically, we rate Bharti Airtel at a BBB minus with a stable outlook and we have been saying that this is a company which has faced excessive competition in the Indian market but nevertheless the management has been committed to an investment grade rating and they have demonstrated that they are willing to raise significant equity and are willing to monetise its stake in some of their non-core assets to deleverage the balance sheet.
In a string of transactions which they have done they have already raised $3.5 billion in rights issuance which is already completed and the African IPO was on expected lines. They are going to raise around $1 billion, primarily to repay the debt at the Netherland entity which will be parent entity of the 14 African operations.
Going forward, we also expect them to monetise some of their stakes in the Indus and Infratel combined entity which is in the last leg of the regulatory approval and requires the NCLT approval now. So, that will lead to a good chunk of equity injection into the balance sheet of Bharti Airtel and will help reduce debt. It will also provide some relief to the balance sheet which has been quite stretched because of the excessive competition from Reliance Jio in the market.
I cannot really comment on the pricing of the IPO and any equity side of it. We can only talk about the future.
If you look at the valuation picture, given the pricing, is it in line with what was estimated?
All I can say is that as we know that they have already done a transaction to sell a stake worth $1.45 billion in the African entity. So from a credit perspective, it is good to see that they have already set up a benchmark there and are also going for an IPO which probably in the investors mind will set a good benchmark.
In our view, the $1 billion will strengthen the balance sheet, will be credit positive because they are essentially going to use it to repay debt and that is something we are continuously monitoring for the incumbents like Bharti, given the fact that they also might have to participate in the 5G spectrum auction in the next 12-24 months. We know that the pricing is very expensive for the 5G spectrum and so they will need cash to be generated to fund their large capex requirements as well.