S&P Global Ratings has stated that Bharti Airtel’s dilution of a roughly 28% stake in its Africa unit will ease some pressure on the rating of the telco, but warned that a risk of a downgrade remains unless its financial parameters improve over 12-18 months.
“Despite the reduction in leverage, we continue to see risk of a downgrade if the business performance of Bharti (BBB-/Negative/) does not improve in line with our expectation over the next 12-18 months, such that the ratio of funds from operations (FFO) to debt remains below 20%,” S&P said.
Earlier in the week, Bharti Airtel’s Africa unit said it is raising $1.25 billion by issuing fresh shares to six global investors including Warburg Pincus, Temasek, Singtel and SoftBank Group International in the first part of a two-stage fund raising exercise aimed at paring debt.
The second stage is an IPO of the Africa unit likely on the London bourses through which the company plans to raise a similar amount, again to reduce its debt. Airtel will dilute over 28% stake, to around 65%, in its Africa unit via the pre-IPO share issue.
The company has faced huge pressure on revenue and profits over the last couple of years in India, due to a brutal price war aggravated by the entry of Reliance Jio Infocomm in September 2016.
The Airtel stock was down 6% to close at Rs297.65 in mid-day trade on the BSE Thursday. It had gained nearly 11% a day before, on the Africa fund raising news.
“Risk to the improvement includes a competition-induced decline in profitability of its India wireless business as well as a sharp depreciation in the Indian rupee (INR). Rupee depreciation will result in a higher translated foreign currency debt and push up Bharti’s capital expenditure,” S&P said. It added however that the higher translated foreign currency debt will largely be a non-cash adjustment.
