Fitch Ratings has revealed the main benefits to Sunil Mittal-promoted Bharti Airtel from the acquisition of Telenor India, a regional telecom operator.
First, the credit profile of Bharti Airtel will not be affected by the planned acquisition as the benefits from additional spectrum assets will offset the liabilities from the acquisition of spectrum.
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Fitch Ratings said the consolidation is not likely to return any pricing power to the operators in the near term.
Reliance Jio’s investment of $20 billion $25 billion and free voice and data offers for six months to subscribers have accelerated industry consolidation.
Second, the on-going consolidation is likely to leave four large operators – Bharti Airtel, Reliance Jio, the combination of Vodafone India and Idea Cellular, and the combined Reliance Communications and Aircel.
Third, The 43MHz of 1800MHz spectrum from Telenor will be the primary benefit to Bharti Airtel. Telenor’s Indian operations will come with 44 million mobile subscribers to Bharti Airtel’s 266 million users in India.
Telenor India generates annual revenue of $600 million – $700 million and EBITDA of $50 million – $60 million. Bharti Airtel generates $14.5 billion revenue and $5 billion – $5.3 billion EBITDA.
Fourth, the addition of Telenor will increase Airtel’s revenue market share by 2 percent to around 35 percent.
Fifth, Bharti will take over the deferred spectrum liabilities, which we will treat as future Capex. “We do not envisage the transaction to result in any other increased debt at Bharti,” said Fitch Ratings.
Sixth, Telenor India’s spectrum in seven Indian telecom circles will bolster Bharti Airtel’s 4G spectrum and allow it to better serve rising data usage by subscribers.
Fitch Ratings expects Bharti Airtel’s EBITDA for the financial year to March 2017 to be around $5 billion – $5.3 billion against $5 billion in FY 2016 despite intense competition in the Indian mobile market during H2 FY 17 (excluding Telenor’s operations). Airtel’s African operations account for about 15 percent of EBITDA and its Indian non-mobile business contributes 23 percent.
Bharti Airtel’s EBITDA fell for the first time in Q3 FY16 to $1.3 billion (run-rate quarterly EBITDA of $1.4 billion), as some of its data traffic moved to Jio’s network.
Bharti Airtel could raise funds by monetising a part of its 72 percent stake in its tower entity, Infratel. Bharti Airtel sold 2.9 percent stake in Infratel for $310 million in 2015.
Bharti Airtel’s decision to buy Telenor Group’s Indian telecom operations is the latest sign that the entry of Reliance Jio is spurring incumbents to consolidate to better meet the intense competition and weaker telecom operators to exit altogether, Fitch Ratings says.
Fitch retains its negative outlook on the Indian telecom sector for 2017, as competition and rising Capex will put pressure on most operators in the short term.