Bharti Airtel secondary stake sale Bharti Infratel is credit positive: Moody's

Downward rating pressure could arise if competition intensifies further in any of its key markets, but particularly for the Indian wireless business.

    According to the Moody's rating agency, Bharti Airtel Ltd' s secondary stake sale of 67.53 million shares or 3.7 percent of Bharti Infratel is credit positive for Bharti but has no immediate effect on its Baa3 issuer and senior unsecured debt ratings and negative outlook.

    Bharti Airtel secondary stake sale Bharti Infratel is credit positive

    The sale was completed via its wholly owned subsidiary, Nettle Infrastructure Limited, for Rs 25.7 billion, or around $400 million.

    "The sale of this stake by Bharti is consistent with management's commitment to strengthening its balance sheet and reducing debt, which we view positively," says Annalisa Di Chiara, a Moody's Vice President, and Senior Credit Officer.

    Earlier in March, Bharti sold a 10.3 percent stake in Infratel to a consortium of funds advised by KKR and the Canada Pension Plan Investment Board for a total of around Rs 61.9 billion (approximately $951.6 million). As a result, Bharti and its wholly owned subsidiaries have reduced their equity stake in Infratel to 58 percent from around 71.96 percent at the beginning of the year.

    The company reported total gross debt of Rs 1,028.1 billion at 30 June 2017. "While a positive, even assuming all proceeds are used for debt reduction, we estimate the impact on leverage is limited. For example, proforma for this transaction, Moody's estimates adjusted debt/EBITDA would have been 3.43x versus 3.50x for last 12 months ended 30 June 2017," adds DiChiara also Moody's lead analyst for Bharti.

    Bharti's profitability remained under pressure over the last three-quarters as price competition was intense, tempering the potential effect of this debt reduction on its leverage metrics.

    Although we expect ongoing and transformative consolidation activity in the Indian telco sector to help stabilize industry-wide average revenue per user over the longer term, intense price competition will persist over the next few quarters, as operators respond to protect and grow their market shares, the agency further stated.

    It added that downward rating pressure could arise if competition intensifies further in any of its key markets, but particularly for the Indian wireless business.

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