No immediate effect of Bharti Airtel’s Rs 60 bn capex plan on its Baa3 rating: Moody’s

Moody's expects Bharti will receive total proceeds of around $2.0 billion from its African tower sales which will be used to reduce debt, and help offset the spectrum deferred payment liabilities that will come on balance sheet as debt by 31 March 2016.

Bharti Airtel's announcement of a Rs. 600 billion capex plan will not immediately impact its Baa3 issuer rating and senior unsecured ratings, Moody's Investors Service stated.

On 30 November, Bharti announced the launch of a planned network transformation program aimed at improving network quality. The company plans to invest Rs. 600 billion ($9 billion) including any discretionary spectrum related investments, over the next three years, largely dedicated to its Indian operations. Initiatives under this program include the deployment of 160,000 base stations, the expansion of mobile broadband coverage to rural areas, the deployment of domestic and international fiber, and the modernization of existing network.

"While the announced capex plan is around 15% above our initial expectations for the next 3 years, we do not expect it to cause leverage to rise, although it may slow deleveraging modestly if the entire amount is spent. Still we expect proceeds from tower asset sales, potential sale of four operations in Africa to Orange SA and other monetization opportunities, including any secondary stake sales, to be prioritized for debt reduction such that the company continues to trend towards adjusted debt/EBITDA of 2.5x over the next 12 months as expected," says Annalisa Di Chiara, a Moody's Vice President and Senior Credit Officer.

The company's adjusted leverage was 2.8x for last twelve months ended 30 September 2015. Moody's expects Bharti will receive total proceeds of around $2.0 billion from its African tower sales which will be used to reduce debt, and help offset the spectrum deferred payment liabilities that will come on balance sheet as debt by 31 March 2016. As of October 2015, $1.7 billion worth of transactions were closed, most of which has been used to pay down debt.

Moody's further expects the company to maintain a prudent approach to capital spending and leverage, funding all capex from cash from operations and monetizing assets opportunistically to support debt reduction on both an absolute and relative basis.
Moody's therefore expects Bharti will continue to deleverage, such that its adjusted debt/EBITDA —including all spectrum deferred payment liabilities as debt and the application of around $2.0 billion tower proceeds to debt reduction— will trend towards 2.5x within the next 12 months.