Airtel just got assigned its lowest credit score by an international ratings agency as pricing pressures continue

Reuters
Read full story

  • Moody’s, an international ratings agency, downgraded Airtel’s debt to “significant credit risk” or “Ba1”, giving the telecom major an overall negative outlook.
  • This is due to the ongoing price war in the telecom market, which has hurt Airtel’s profitability and cash flows.
  • The decision means that Airtel will have a tougher time securing loans from banks and issuing bonds at capital markets.

Earlier this morning, Moody’s, an international ratings agency, downgraded Airtel’s debt to “significant credit risk” or “Ba1m”giving the telecom major an overall negative outlook. This was the first time that Airtel received this rating for its senior unsecured debt.

The reason? The competitive nature of the Indian telecom market.

The ongoing pricing war in India’s telecom sector in the aftermath of Reliance Jio entering the market, has seen service providers offer rock-bottom prices and unlimited data packages, significantly denting their profitability and revenues.

Moody’s Vice President, Annalisa DiChiara, attributed the decision to, “uncertainty as to whether or not the company's profitability, cash flow situation and debt levels can improve sustainably and materially.” Airtel’s profitability is expected to remain subdued over the next few quarters as pricing pressures continue.

For the quarter ended December 2018, Airtel’s profit fell again, declining by 72% to ₹860 million while the total number of subscribers fell by 58 million. The quarter also marked the first time that Airtel’s mobile services revenue was lower than that of rival Reliance Jio.

In response to the ratings action, Airtel’s share price dipped below the ₹300 level in the first session of trading today, falling by 4%. The decision by Moody’s means that Bharti Airtel will have a tougher time securing loans from banks and issuing bonds at capital markets - because it will have to take out debt at higher rates.

At the end of December 2018, Airtel’s net debt burden stood at a little over ₹1.06 trillion, representing a 27% increase in the preceding two years. Reliance Jio entered the Indian telecom space in September 2016.

In November 2018, Moody’s put Airtel on a “ratings watch”, indicating a risk of a downgrade, after citing the company’s declining profits and cash flow problems. Following the ratings watch, Airtel moved quickly to reportedly raise loans of over $2 billion prior to the actual downgrade.

The ratings agency will now review Airtel’s rating once it demonstrates a recovery in mobile revenue and culls its debt burden. For its part, the company is planning to raise as much as $3 billion through asset sales in the coming year to pay back its debt obligations.


SEE ALSO:

Facing a furious price war at home, India’s largest telecom company Airtel is being forced to backpedal on its global ambitions

India’s largest telco is eyeing two deals to reduce its high debt levels
{{}}
Add Comment()

Comments ()

X
Sort By:
Be the first one to comment.
We have sent you a verification email. This comment will be published once verification is done.