S&P upgrades Airtel's credit rating to BBB-

International credit rating agency Standard and Poor's today upgraded telecom major Airtel to 'BBB-' on account of reduced debt and an improved regulatory environment.

The agency said in a statement that "it had raised its long-term corporate credit rating on Bharti Airtel Ltd to 'BBB-' from 'BB+'. The outlook is stable."

Simultaneously, S&P raised the long-term issue rating on the $1.5 billion raised by the company through senior unsecured notes and the 1 billion euro bonds backed by the company's guaranty to 'BBB-' from 'BB+'.

A 'BBB-' rating is considered the lowest investment grade by market participants and a BB+ rating is considered the highest speculative grade, according to S&P's website.

The agency said it expects Bharti to generate free operating cash flows of $1.5 billion-$2 billion annually despite acquiring spectrum in the February auction at a price that is significantly higher than its earlier estimate.

"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.

Dangra said the regulatory framework for telecom companies in India is improving and it 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," Dangra said.

S&P expects Bharti's financial performance to improve over the next 12-24 months due to better operating performance, deleveraging measures and controlled capital spending.