1. Business

Fitch downgrades Bharti Airtel on AGR ruling, assigns watch negative rating

Fitch Ratings on Wednesday positioned Sunil Mittal-led Bharti Airtel on ”rating watch negative” amid uncertainty over the quantity and timing of unpaid regulatory dues arising from a latest Supreme Court ruling.

The international rating company has positioned Bharti Airtel’s BBB- Long-Term Foreign-Currency Issuer Default Rating (IDR) on Rating Watch Negative (RWN) and its and Bharti Airtel International (Netherlands) BV”s senior unsecured bonds and Network i2i”s subordinated perpetual bonds on RWN.

The RWN displays uncertainty on the quantity and timing of unpaid regulatory dues, after Supreme Court dominated in favour of the nation’s Department of Telecommunication’s (DoT) definition of adjusted gross income (AGR), the company stated.

“This led to DoT’s demand that Bharti pay unpaid dues on licence fees of USD 3 billion. There may be another potential demand of USD 2.9 billion in regard to unpaid dues on spectrum usage charges,” Fitch stated.

The rating motion got here in wake of latest Supreme Court verdict asking telcos together with Bharti Airtel to pay up Rs 92,641 crore to the DoT over the AGR dispute. The Airtel alone has unpaid dues of Rs 41,507 crore, with almost Rs 22,000 crore in license charges, penalty, and curiosity.

Also Read: About 40,000 telecom jobs in danger after SC verdict places Rs 92,600 crore burden on sector

The decision of the RWN, which can take greater than six months, requires readability on the precise quantity and timing of the fee of unpaid dues and whether or not the federal government will present any monetary aid to the telecom sector affected by the courtroom ruling, it stated.

According to Fitch, Bharti Airtel’s funds from operations (FFO) adjusted web leverage may worsen to round 3.1x-3.4x for the monetary 12 months ending March 2020 (FY20, earlier estimate of two.0x-2.2x) — excluding USD 6.Three billion in deferred spectrum prices — if the corporate needed to pay total estimated unpaid dues of USD 5.9 billion, funded out of debt.

On Tuesday, the corporate had deferred the discharge of its second quarter earnings report until November 14 because it sought readability and “support” from the federal government on statutory dues after the Supreme Court verdict.

“This leverage would be significantly higher than 2.5x threshold above which Fitch would consider negative rating action.”

Also Read: Immediate fee of DoT dues to restrict telcos’ 5G bids: Fitch Ratings

However, Bharti might be able to partly fund the unpaid dues by means of a deliberate stake sale of USD 2.5-3.5 billion within the mixed Bharti Infratel (Infratel) and Indus Tower entity, which is awaiting regulatory approval of the merger, it stated.

Fitch stated Bharti’s leverage is unlikely to materially enhance the case attributable to negative free money movement (FCF).

“We forecast negative FCF in FY20 (FY19: negative Rs 21,900 crore), as cash flow from operations of Rs 22,000-24,500 crore will be insufficient to fund large capex plans and moderate dividends of Rs 3,000-4,000 crore,” it stated.

“Barring regulatory dues, we expect FY20 capex/revenue to remain high at 34%-37%, with forecast capex of around USD4 billion, as Bharti continues to strengthen its 4G network and fibre infrastructure. However, the company expects core capex, which excludes deferred spectrum payments, to have peaked and to decline significantly in FY20,” it added.

The rating company anticipated the federal government to carry 5G spectrum public sale within the subsequent 12-18 months however felt the incumbents might not take part in the event that they must pay unpaid regulatory dues within the quick time period.

Meanwhile, shares of Bharti Airtel closed commerce at Rs 368.25 apiece, up 2.31 per cent, on the Bombay Stock Exchange on Wednesday.

Edited by Chitranjan Kumar with PTI inputs

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