Moody's Investors Service says that proceeds from Bharti Airtel (Baa3 stable) agreements to sell 83% of its tower portfolio in Africa will allow for significant deleveraging, but spectrum payments from the March 2015 auction have the potential to offset the expected debt reduction.
''The four agreements to sell 12,500 towers will allow Bharti to focus on its core business as a cellular telecommunications operator, and enable it to reduce its balance sheet debt,'' says Annalisa Di Chiara, a Moody's vice president and senior analyst.
''But while Bharti's operating costs for its towers will decline, its rental costs for leasing back the towers will rise,'' says Di Chiara, adding ''In addition, spectrum auction payments-which we estimate could be in the USD 2-USD 3 billion range - could offset the debt reduction.''
Di Chiara was speaking on Moody's just-released report on Bharti Airtel, entitled ''Bharti's Spectrum Payouts Will Likely Offset Credit-Positive Effect of African Tower Sales.''
In the report, Moody's discusses a hypothetical scenario to estimate the likely effects the tower sales and spectrum auction would have on Bharti's credit metrics and profile.
In this scenario, although Bharti has not disclosed details of the sales agreements, Moody's expects it will receive around USD 2.2 billion from the tower sales.
Bharti has committed to use all proceeds from the sales to reduce debt.
''Based on its assumption of USD 2.2 billion in sales receipts, we expect Bharti's adjusted leverage will initially decline to 2.5x from 2.9x for the fiscal year ending March 2015, reflecting the debt reduction,'' added Carole Herve, Associate Analyst and co-author of the report.
Moody's further notes that the disposals will improve Bharti's debt currency mix. If Bharti uses the proceeds to reduce US dollar debt, the proportion of US dollar debt should trend below 40% by 31 March 2015 from around 60% at Mar. 31, 2014, thus reducing the currency mismatch.
Bharti has licenses expiring in six circles in 2015 and 2016, and India's next round of spectrum auctions is slated for early March 2015. Moody's expects the total amount payable for the spectrum licenses -- both to renew expiring licenses and new spectrum wins-could be in the USD 2-USD 3 billion range.
This would cause adjusted debt to return into the USD 17 billion range and adjusted debt/EBITDA to climb back to 2.9x.
Although the outcome of the auction and winning prices are not entirely predictable, based on Moody's assumption of the USD 2.2 billion from the tower sales and USD 2.0-USD 3.0 billion due in spectrum payments, Bharti's adjusted leverage will likely remain in the 2.5x-3.0x range through March 2016.
Shares of the company declined Rs 2.1, or 0.6%, to trade at Rs 347.30. The total volume of shares traded was 86,229 at the BSE (2 p.m., Tuesday).
