S&P Global Ratings today said its rating on telecom operator Bharti Airtel is unaffected by the company's plan to sell 10.3 percent stake in its subsidiary Bharti Infratel, but added the deal will help improve its financial ratios.
The stake sale would help Bharti Airtel restore some "cushion" in financial leverage ratios that have been adversely affected due to spectrum acquisitions (including Telenor ASA's India operations and Tikona Digital Networks), it said.
"Bharti Airtel's plan to apply the USD 951.6 million (over Rs 6,100 crore) sale proceeds to reducing debt is in line with our expectation that the telecom operator will continue to take measures to lower its leverage," it said in a statement.
On Tuesday, telecom operator Bharti Airtel sold 10.3 per cent stake in its mobile tower arm Bharti Infratel to a consortium of KKR and Canada Pension Plan Investment Board for Rs 6,193.9 crore.
Bharti Airtel's operating performance for the fiscal year ending March 2017 has been weakening amid intense competition in the wireless market post the entry of Reliance Jio, which is offering free services until the end of the month, S&P noted.
"We still expect Bharti Airtel's ratio of funds from operations (FFO) to debt to remain at 21-22 percent in the fiscal 2018, resulting in limited financial headroom for the rating," it added.
Stating that it believed that the competition in the Indian wireless market will remain "intense" over the next 12 months at least, S&P said that Bharti Airtel is well placed among incumbents to face competition.
"Nevertheless, there is uncertainty on the impact on Bharti's revenue market share and profitability, once Reliance Jio starts charging for its services starting April 1, 2017, and with the impending merger of Vodafone India and Idea Cellular that could create the largest Indian telco," it added.
Bharti Airtel can withstand a drop of about 5 percent in revenues - due to a loss in subscribers or fall in average revenue per user - with lower EBITDA (earnings before interest, tax, depreciation and amortisation) margins of 38-39 percent for the India business and still maintain its ratio of FFO to debt at more than 20 percent in fiscal 2018.
But significant loss in revenue market share, weaker profitability and higher capital expenditure (including spectrum) could put pressure on the rating in the absence of deleveraging measures, it added.
Disclosure: Reliance Industries, which owns Reliance Jio, also owns Network18, which publishes Moneycontrol.com.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!