Moneycontrol Bureau
Investors are lapping up shares of top telecom operator Bharti Airtel after rating agency Standard and Poor's Rating Services raised long-term corporate credit rating on the company to BBB- from BB+ on likelihood of reduced leverage and improving regulations. The stock rallied 5 percent.
Rating agency in its report dated March 6 said the the outlook was stable. At the same time, it raised the long-term issue rating on the USD 1.5 billion senior unsecured notes due 2023 and the euro 1 billion senior unsecured notes due 2018 that Bharti guarantees to BBB- from BB+.
"We raised the rating to reflect our expectation that Bharti will use its significant free operating cash flows and funds from strategic measures to reduce its leverage to a level that is in line with an intermediate financial risk profile," Standard & Poor's credit analyst Abhishek Dangra said.
He further said, "We also believe that the regulatory framework for telecommunication companies in India is improving, and this will reduce the uncertainty and ambiguity that Bharti faced in the past few years. Further, we anticipate competition to moderate as smaller and weaker players get marginalised due to regulatory developments and cash flow pressures."
S&P expects Bharti's financial performance to improve over the next 12-24 months owing to the company's improving operating performance, deleveraging measures, and controlled capital spending.
"Bharti's declining debt also reduces the adverse impact of foreign exchange fluctuations on the company's leverage. About 80% of Bharti's debt is in foreign currency and carries a floating rate. The company's limited hedging and international operations do not provide a full hedge for its debt, in our opinion," the report said.
The rating agency believes regulatory risks in India are still above-average compared with global markets, despite a significant improvement recently.
"The February 2104 spectrum auction in India has established a well-defined auction process, which could serve as a model for future renewals. Regulatory uncertainty still persists with issues regarding charges for one-time spectrum fees and restrictions on 3G roaming arrangements," the report said.
According to rating agency, Bharti has the financial ability to withstand sovereign stress and still have enough liquidity to honor all its obligations in a timely manner.
Meanwhile, Bharti Airtel said it now carries a stable investment grade rating from all three major rating agencies - S&P (BBB-; stable), Moody's (Baa3; stable) and Fitch (BBB-; stable).
The rating reflects Bharti’s strong market leadership, business diversity, strong financial profile and the improving regulatory and competitive environment in India, the company said in its filing.
"The consistent ratings give us an even better access to global capital markets to continue to diversify our sources of funding and lengthening the tenors of our debt. S&Ps assessment also reflects on our ability to withstand a sovereign stress," Harjeet Kohli, Group Treasurer, Bharti Airtel said.
At 12:00 hours IST, the stock rose 4.62 percent to Rs 299 on the Bombay Stock Exchange.
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