KOLKATA: Global rating agencies Fitch and S&P Global have assigned a ‘BBB-‘ rating to Bharti Airtel’s proposed US dollar-senior unsecured notes and a ‘BB’ rating to the subordinated perpetual notes to be issued by Network i2i’ – the telco’s wholly-owned Mauritius arm.
This, even as Fitch estimates Bharti’s Indian wireless Ebitda to rise by around 40%-50% in FY21, led by 25 million subscriber adds and monthly average revenue per user (ARPU) improvement of 10%-12%. It also expects Bharti’s FY21 revenue and overall Ebitda to rise by around 18%-25%, on improvement in the Indian wireless market and continued growth in Africa, despite the pandemic-induced economic slowdown.
“Bharti’s proposed senior unsecured notes will be rated in line with its senior unsecured rating of ‘BBB-‘, as they will rank at least equally with all its other present and future unsecured and unsubordinated obligations,” Fitch Ratings said in a media statement Tuesday.
Network i2i’s proposed subordinated perpetual notes will be rated “two notches below Airtel’s long-term Issuer Default Rating (IDR), the same as the existing 5.65% subordinated perpetual bond rated at ‘BB’, to which they will rank pari passu,” Fitch added.
The proposed subordinated perpetual notes are similar to the existing securities, ranking senior only to Airtel’s equity. They will have five-year resettable coupons starting from 5.25 years with step-ups of 25 basis points after the initial term of 10.25 years and a further 75 basis points after 25.25 years.
“Hence, we consider the subordinated perpetual securities to have an effective maturity of 25.25 years,” said S & P Global.
S & P, though, reportedly said the outlook on Airtel remains negative as the company’s deleveraging path has been hampered by regulatory uncertainties and investments that have exceeded expectations. But it added that the telco’s stronger-than-anticipated earnings growth had mitigated an immediate ratings downside.
Airtel recently returned to the black, posting an Rs 854 crore net profit in the December quarter after six straight quarters of losses, on the back of a one-time gain linked to the BhartiInfratel and Indus Towers merger and strong mobile broadband user adds that led to record revenue.
Fitch Ratings, in turn, said the proceeds of the proposed senior unsecured notes and subordinated perpetuals would be used to repay existing debt and for capex.
Airtel is said to have appointed more than half-a-dozen investment banks, including Bank of America, Barclays, Citigroup, JP Morgan, HSBC, and Standard Chartered Bank, who will help it raise a shade over $1 billion (Rs 7,500 crore) via overseas bonds. The bonds sale is expected to be launched either this weekend or early next week.
Airtel will meet global fixed income investors on or after February 23 towards its stated plans to raise up to Rs 7,500 crore via bonds to build a war-chest even as India’s second-largest telco needs cash to buy spectrum in the upcoming 4G auction, invest in networks and also pay statutory dues, among other needs.
In this context, Fitch said the issuance will be fully guaranteed by Bharti and constitute a direct, unsecured and subordinated obligation of Bharti. The rating on the proposed notes will reflect the deeply subordinated nature, ranking junior to all existing and future debt obligations and senior only to Bharti’s ordinary shares, it added.
The proposed subordinated perpetual securities will qualify for 50% equity credit as they meet Fitch’s criteria with regard to deep subordination, effective maturity in excess of five years, full discretion to indefinitely defer interest coupon payments, limited events of default and the absence of material covenants and look-back provisions.
“Equity credit is limited to 50% due to the cumulative interest coupon, a feature that we regard as more debt-like in nature,” Fitch said.
Fitch will treat the coupon payments as 100% interest in its financial analysis of Bharti, despite the 50% equity treatment of the principal amount. This approach, it said, is in accordance with its Corporate Hybrids Treatment & Notching Criteria.
“We expect 50% equity credit for the securities until 2041, five years before the effective maturity date in 2046, which is when the replacement language expires. Equity credit drops to zero after 2041,” it added.