ICRA revises long-term rating to Rs 2250 crore bank lines of Bharti Airtel

Telecom Lead India: ICRA has revised the long-term rating
assigned to Rs 2250 crore bank lines of Bharti Airtel from AAA to AA+.

ICRA has also revised the Issuer Rating for the company
from IrAAA to IrAA+.

The outlook on the above ratings has been revised from
Negative to Stable.

The short term rating for the Rs 250 crore bank lines of
the company has been reaffirmed at A1+.

The rating revision takes into account the lower than
anticipated profitability in its core operations (including in the African
business) as well as lower than anticipated pace of deleveraging, mainly due to
non materialization of the planed infusion of equity funds, because of which
the company’s capital structure and leverage indicators continue to remain
adverse for the rating category.

The net debt in dollar terms reduced by 5.3 percent from
$13,427 million as on March 31, 2011 to $12,714 million as on March 31, 2012.
Further, with substantial forex depreciation, in rupee terms, the gearing
stands at 1.29x and net debt/EBITDA is 2.75 times for the year ended March

ICRA said the ratings also take into consideration Bharti
Airtel’s exposure to regulatory uncertainty in India, especially with regard to
levy of one-time spectrum fee, spectrum re-farming, availability and pricing of
spectrum across different frequency bands.

The Africa operations of the company (which contributed
28 percent to consolidated revenue and 22 percent to consolidated EBITDA in
FY2012) have witnessed improvement in profitability (operating margins improved
from 21.8 percent in FY2011 to 26.6 percent in FY2012), on the back of
subscriber additions and cost-reduction initiatives undertaken by the company.
Nevertheless, performance of Africa operations is lower than levels estimated

While the company continues to generate significant
operational free cash flows, however given the sizeable capex plan of the
company for the next few years (estimated $ 3.1-3.2 billion for FY2013 for
India and Africa combined), significant reduction in debt through organic means
appears challenging. ICRA also takes note of the fact that the company’s
management is looking at various fund-raising options to de-leverage its
balance sheet. However, a higher than anticipated impact due to regulatory
developments, especially in light of TRAI’s April 2012 recommendations on
spectrum pricing will be a key rating sensitivity.

The company also continues to remain exposed to foreign
currency exposure risk given that a sizeable portion of debt is US Dollar
denominated and company’s significant amount of cash flows are rupee

However, ICRA takes note of the elongated maturity
profile of the debt and company’s financial flexibility, as demonstrated by its
ability to tie-up foreign currency debt finances to meet maturing liabilities.

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