BHUBANESWAR: Telecom major Bharti Airtel may face a rating downgrade soon on the back of low levels of profitability and anticipation of weak cash flow, said Moody’s Investors Service. The rating agency has placed on review for downgrade the ‘Baa3’ issuer and senior unsecured rating of Bharti Airtel and the ratings on the backed senior unsecured notes issued by Bharti’s wholly-owned subsidiary, Bharti Airtel International (Netherlands) B V, it said in a statement.
“The review for downgrade is primarily driven by our expectation that Bharti’s cash flow generation will remain weak and leverage elevated,” said Annalisa DiChiara, vice-president and senior credit officer at Moody’s. The review also reflects the company’s low levels of profitability, particularly from its core Indian mobile operations, negative free cash flow and higher debt levels to fund capital spending.
“We believe a more rational competitive environment in telecommunications market is unlikely over the next 12-18 months, the review also reflects uncertainty as to whether the company’s profitability, cash flow situation and debt levels can improve sustainably and materially over the same period,” added DiChiara, who is also Moody’s lead analyst for Bharti.
The telecom firm’s consolidated adjusted debt/EBITDA stood at around 4.5x, as of 30 September 2018.
Moody’s noted the review on the rating will focus on Airtel’s plans to reduce debt levels over a short period of time and its turnaround strategy underlying the mobile operations business. Moody’s expects that most of the $1.25 billion raised from the pre-IPO of its African business will be used to reduce debt.