The recent round of fund-raising will strengthen balance sheet and improve cash flows of telecom company Bharti Airtel, which could raise an additional USD 3.5 billion by selling majority stake in the tower firm formed through merger of Infratel and Indus Tower, Moody's said Friday.
But while the company's leverage is improving, a rating stabilisation will be driven by operational improvement in Indian mobile operations, Moody's said in its latest report.
Sale of a significant stake in its tower assets would help in further debt reduction, the ratings agency added.
"We expect Bharti to ultimately sell a significant stake in the tower company formed from the merger of Infratel and Indus Tower, although it may retain a minority stake. Assuming a premium to Infratel's average closing price in July, we estimate Bharti could raise an additional USD 3.5 billion (about Rs 25,000 crore) of cash," it said.
If these proceeds too are applied to debt reduction activities, Bharti's leverage could fall below 3.5X by fiscal 2020, the report said, adding in the same breath, that this was Moody's "hypothetical scenario" and should not be interpreted as predictive of an outcome.
Moody's report noted that Bharti Airtel had completed an Rs 25,000 crore (USD 3.5 billion) rights issue in May and the listing of its African subsidiary, Airtel Africa Ltd, which raised USD 750 million in June. It said that proceeds from recent capital-raising activities will strengthen balance sheet and improve cash flows for the company.
More From This Section
"Despite a significant fall in Bharti's absolute debt, leverage will remain above 3.5x, the threshold for outlook stabilization," it added.
Although cash flows will increase as interest costs fall, a meaningful expansion of organic profitability at Bharti's Indian mobile operations is needed to improve its credit profile, Moody's said.
"We expect Bharti's capital spending and network costs to remain high as competition remains intense. Following an eventual tower asset sale and the dilution of its stake in Airtel Africa, Bharti will rely more heavily on organic cash flow from the Indian operations to meet ensure adequate financial flexibility going forward," it added.