Moody's downgrades credit rating of Bharti Airtel to Ba1 from Baa3

Moody's Investors Service Tuesday downgraded the credit rating of telecom operator Bharti Airtel and the backed senior unsecured notes issued by the telco's Africa arm on account of uncertainty around the company's profitability, cash flow situations and debt levels. "Moody's Investors Service ("Moody's") has downgraded to Ba1 from Baa3 the senior unsecured rating for Bharti Airtel Ltd. (Bharti) as well as the backed senior unsecured notes issued by Bharti's wholly-owned subsidiary, Bharti Airtel Int'l (Netherlands) B.V.," the agency said in statement.

Credit ratings reflect the company's calibre to repay debt and raise funds. Ratings range between Aaa, which means best, to lowest category C. Ba1 rating means obligations are judged to have speculative elements and are subject to substantial credit risk, but have a superior ability to repay short-term debt obligations. "At the same time, Moody's has assigned a Ba1 corporate family rating (CFR) to Bharti and withdrawn the company's Baa3 issuer rating. The ratings outlook is negative," Moody's report said.

The negative outlook indicates possibility of further downgrade of rating. "The downgrade reflects uncertainty as to whether or not the company's profitability, cash flow situation and debt levels can improve sustainably and materially, given the competitive dynamics in the Indian telco market," Moody's Vice President and Senior Credit Officer, Annalisa DiChiara said.

The report said that Bharti Airtel reported EBITDA (cash flow indicator) of Rs 26,500 crore for the 12 months ending December 31, representing a 15.5 per cent year over-year contraction and the profitability of its core Indian mobile segment -- which contributes around 37 per cent of EBITDA - remained low, generating just Rs 9,800 crore over the same period. Bharti Airtel, last week, reported a 72 per cent drop in consolidated net income for the three months ended December 2018 at about Rs 86 crore, amid market turbulence triggered by cut-throat competition in India business.

Change in accounting structure with respect to Airtel Payments Bank brought an exceptional gain of Rs 1,017 crore for Bharti Airtel and bolstered the company's financials. "After accounting for gain of Rs 1,017 crore towards exceptional items (net of tax), the resultant net income for the quarter ended December 31, 2018, came in at Rs 86.2 crore," Airtel said in a statement.

Its net income stood at Rs 306 crore in the same period of the previous year. While rival Reliance Jio posted a 22 per cent rise in profit at Rs 831 crore on a year-on-year basis in the home turf, Airtel's losses from India operations (before exceptional items) stood at Rs 971.9 crore, compared to a net income of Rs 373.5 crore in the year ago period. Among telecom service business arm, only Airtel Africa recorded increase in the profit.

(With inputs from agencies.)