May 28 - Fitch Ratings says that Bharti Airtel Limited's
(Bharti) Long-Term Foreign-Currency Issuer Default Rating of 'BBB-' with
Negative Outlook is unaffected by its acquisition of US-based chip maker
Qualcomm's broadband wireless access (BWA) spectrum assets in India.
"Although Bharti's rating has limited headroom for a large debt-funded
acquisition, the acquisition of a 49% stake in Qualcomm's Indian entity does not
immediately burden its balance sheet," says Nitin Soni, Associate Director,
Fitch's Asia-Pacific Telecom, Media and Technology team. "Only when Bharti
increase its ownership of Qualcomm's BWA Indian entities to 100% by end-2014
will it then have full responsibility to service the entities' outstanding
The Negative Outlook continues to reflect the adverse effect of India's
uncertain regulatory environment. Fitch is monitoring regulatory decisions that
may result in higher regulatory cash outflows than the agency's base case
assumptions. The agency notes that a large regulatory cash outflow coupled with
a much earlier-than-expected (prior to FY15) responsibility to service the
additional debt at Qualcomm's BWA entities could result in a negative rating
action, particularly if Fitch expects Bharti's funds from operations-adjusted
net leverage to remain above 2.5x on a sustained basis (financial year
ended-March 2012: 2.7x).
Bharti announced on 24 May 2012 that it acquired a 49% stake in Qualcomm Asia
Pacific's Indian BWA entities for an upfront cash consideration of USD165m
(INR9.1bn). Of this USD75m will firstly be used to acquire a 26% equity interest
in Qualcomm's BWA entity that is currently equally held by Global Holding
Corporation Private Limited - parent company of GTL Infrastructure Limited
(Fitch 'C(ind))' - and Tulip Telecom Limited (Tulip, 'Fitch A+(ind)'/Negative).
The balance subscription of USD90m will be used to acquire fresh equity in these
entities. This will give Bharti a right to use Qualcomm's spectrum assets in
Delhi, Mumbai, Haryana and Kerala.
Post the Qualcomm transaction, Bharti would have access to 3G/BWA spectrum in 18
of India's 22 telecom circles. Fitch believes that BWA will contribute minimal
revenue to Bharti in the next two years as the 4G infrastructure is still
developing. However, data penetration is likely to grow significantly in India
during the next decade due to growing data demand, increasing affordability of
3G tariffs and handsets, as well as growing mobile application content.
Qualcomm acquired its Indian BWA licence in a keenly contested auction held in
June 2010 in four Indian states for about USD1bn. The company managed to get a
licence only in March 2012 to provide internet services after an 18-months wait
due to regulatory delays. Bharti also won four licences in the same auction in
different areas - Maharashtra, Karnataka, Kolkata and Punjab.