Moody's Investor Service on Tuesday downgraded the senior unsecured rating for Airtel and backed senior unsecured notes issued by subsidiary Bharti Airtel Int'l (the Netherlands) to 'Ba1', or junk rating, from 'Baa3'. The American rating agency also withdrew the company's 'Baa3' issuer rating and said the outlook was negative.
"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 telecom market," Moody's Vice-President Annalisa DiChiara said in a note. "A significant recovery in cash flow from the core Indian mobile segment is needed to strengthen the company's credit quality and support greater financial flexibility," DiChiara said.
Moody's, at the same time, assigned a Ba1 corporate family rating (CFR) to Airtel, saying it reflects the company's solid market position in the high growth Indian mobile market. "We recognise the company has raised $1.45 billion from the pre-IPO of its African operations, with around $1 billion used to repay debt on consolidated basis," the ratings agency said.
"The rating outlook could be stabilised if Bharti strengthens its credit profile, with stabilisation of its core Indian mobile and non-mobile services," it added. Moody's estimated that the profitability of Bharti's Indian mobile segment will remain low over the next several quarters in the absence of a fundamental change in the pricing of mobile services, together with proportional shift in the composition of Bharti's subscriber base to high-end 4G customers.
Bharti Airtel last week said its net income for the October-December quarter declined nearly 72 per cent to Rs 86 crore due to continuing pricing pressure. The company has, however, taken steps to improve revenues and profitability including its minimum recharge plans, the Moody's report added.