The global agency has also affirmed Airtel’s long-term foreign currency issuer default rating (IDR) at `BBB—‘ but assigned a “negative outlook” on this. Fitch, though, clarified that the “negative outlook” is triggered by a possibility of India’s sovereign rating getting lowered, and did not reflect its view on Airtel’s underlying credit profile, which “has improved,” driven by “strong growth of its India and Africa wireless operations.
“Fitch forecasts Bharti’s capex to increase to about $1.5 bn in FY22 (FY21: $4.6 bn), of which $1.5 billion is likely to be paid upfront to acquire 5G spectrum assets…the company will also seek to strengthen its fibre infrastructure to prepare its network to launch 5G services in 2022-2023,” the global ratings agency said in a media statement Thursday.
Bharti’s capex on 5G infrastructure in FY23, it said, would replace its current 4G capex, as 4G coverage is largely complete”.
Fitch added that barring “a one-time 5G spectrum payment, Bharti is likely to generate positive free cash flow in FY22 on higher Ebitda generation, which should be sufficient to fund higher core capex, interest costs and taxes”.
Telecom minister Ashwini Vaishnaw recently said the next spectrum sale will happen in the second quarter of calendar 2022.
Fitch said the negative outlook on the telco’s IDR is due to the “heightened probability that India’s country ceiling of ‘BBB-‘ could be lowered to ‘BB+’, which would “constrain Bharti’s IDR and senior issue ratings to BB+”.
The global ratings agency said that while Bharti’s IDR and senior issue ratings are not directly constrained by a sovereign rating, it “cannot exceed the country ceiling, which reflects the transfer and convertibility risks associated with foreign-currency obligations”.
Fitch, though, estimates Bharti’s FY22 revenue to “rise by 10%-12% and Ebitda by 20%-22%, on improvement in its India wireless market and strong growth in the African markets”. It also forecasts the telco’s FY22 funds from operations (FFO) net leverage at “1.8x-2.0x in FY22, well below the threshold of 2.5x,” beyond which it would take negative rating action.
Fitch also affirmed overseas arm, Bharti Airtel International (Netherlands) BV’s senior unsecured guaranteed bonds at ‘BBB-‘ and the telco’s wholly-owned Mauritius arm, Network i2i’s subordinated perpetual bonds at ‘BB’.
The global ratings agency expects that India’s top two telcos, Reliance Jio and Bharti Airtel will increase their combined revenue market share (RMS) to 80%-82% in 2022, from around 77%-78% in June 2021.
Earlier this week, Bharti said it would raise all prepaid tariffs by upto 25% from November 26 in a bid to boost average revenue per user (ARPU) and improve its financial health.
Analysts estimate the much-awaited tariff hikes – effective from November 26 – across prepaid plans to immediately trigger a 6% rise in Airtel’s ARPU from Rs153 at September end and an 8% increase in earnings before interest, tax, depreciation & amortisation (Ebitda) in FY22 as the gains will start flowing through from the fiscal fourth quarter itself.