(The following statement was released by the rating agency)
Feb 01 - Fitch Ratings says that India-based Bharti
Airtel Limited's (Bharti, 'BBB-'/Negative) financial profile could improve in
the year ending March 2014 (FY14), aided by manageable spectrum payments and the
likely return of pricing power. This is despite the persistence of regulatory
uncertainty over the final auction price of the 900MHz spectrum in March 2013.
Bharti's January 2013 decision to double its voice tariff to INR2 per minute
from INR1 per minute in phases will help the company to deleverage in FY14.
Fitch believes that this move indicates a likely first sign of a return in
pricing power, as competitive intensity abates due to the exit of some
operators, on-going operating losses for weaker telcos and high spectrum prices.
Regulatory risk surrounding spectrum-related cash outflows is now fading because
the government has allowed telcos to pay the one-time fee for excess spectrum
over 6.2MHz in phases over the life of the licences. Furthermore, spectrum
prices could come down further in 2013 from the reserve price used in the last
auction held in November 2012. Such payments too can now be paid in phases as
announced by the regulator in late 2012.
Bharti can partially pay a one-time spectrum fee of INR52bn (USD963m) with
proceeds from its December 2012 sale of its stake in its Tower arm - Bharti
Infratel - for which it received USD583m. Also, the Indian government's
decision to allow such fees to be paid in phases - one-third upfront and the
rest over the remaining life of the license - will help the company in managing
its cash flows. While this payment is currently under dispute by Bharti and an
Indian High Court has stayed the demand of such charges, Fitch believes Bharti's
annual cash outflow from the one-time fee will be a maximum of USD200m.
Also, following the limited participation in the auction held for 1800MHz
auction in November 2012, where only 42% of the offered spectrum was sold, the
Indian government reduced the spectrum price of unsold circles by 30% (mainly
Delhi and Mumbai) and the spectrum price of CDMA by 50%. The government is
planning to hold another auction of the 900MHz and 1800MHz spectrums in March
2013. The price of spectrum in 900MHz has been fixed at two times the price of
airwaves in the 1800 MHz spectrum, although it is probable that the final price
may be lower.
Bharti's nine months ended December 2012 (9M12) results were in line with
Fitch's expectations. Revenue and EBITDA rose by 14% and 5% respectively
year-on-year due to a growing Indian and African subscriber base. EBITDA margin,
however, deteriorated by 200bps to 31% on higher network operating costs (+21%)
and marketing cost (+22%) as the company rolled out its 3G network and competed
aggressively to regain its lost revenue market share. Also, Bharti's leverage
will benefit from its downward FY13 capex revision to USD2.5bn-2.6bn from