Airtel's acquisition to Telenor India is Credit Positive, says Moody's

Investors Service Moody's recently said that the announcement made by Bharti Airtel for acquiring Telenor is a positive step.

According to the agreement, Bharti will acquire Telenor India's operations in seven circles, including the transfer of all assets (including spectrum) and customers. The transaction is subject to regulatory approvals and expected to take 12 months to close.

Following the proposed acquisition, Bharti's spectrum holding will increase in seven circles, and its subscriber market share will increase by around 2 percent, enhancing the company's leading market position in India's highly competitive mobile telecommunications market, a credit positive, and providing further growth potential in these areas," says Annalisa Di Chiara, a Moody's Vice President and Senior Credit Officer.

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After completion Bharti's mobile services subscriber base in India would increase by approximately 44 million to 310 million to give around 26 percent total customer market share, while Bharti's revenues would increase around 5 percent for the 12 months ended 31 December 2016.

The report says that, Telenor's 43.4MHz spectrum in the liberalized 1800MHz band across seven circles with 16 years remaining license period, will bolster Bharti's spectrum footprint, service offering and network coverage.

"It's a non-cash deal and although Bharti will take over outstanding spectrum payments and other operational contracts, including tower leases, we do not expect it will have a material impact on the company's consolidated leverage. Bharti's adjusted consolidated debt/EBITDA (including deferred spectrum liabilities) was 3.3x as of December 2016," added DiChiara, also Moody's lead analyst for Bharti.

However, the analyst at Moody's believe that Jio's recently announced tariff plan (beginning 1 April 2017) will improve industry-wide average revenue per user over the longer term.

"We still expect intense price competition to persist over the next few quarters, as incumbents such as Bharti, Vodafone India (unrated) and Idea Cellular respond in efforts to protect their subscriber market shares," added DiChiara.

"However, cash proceeds from monetization activities -- including divestments in subsidiaries such as Bharti Infratel (unrated) -- will help reduce debt on an absolute and relative basis, such that adjusted debt/EBITDA trends towards 3.0x by June 2017, providing cushion to absorb shocks in profitability," the report added.

Meanwhile that report says, "any delay in expected deleveraging will put negative pressure on the rating. Downward pressure could also arise if competition intensifies further in any of its key markets, but particularly for the Indian wireless business, such that its key operations and/or subsidiaries report materially declining margins."