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Fitch Ratings has maintained ‘negative outlook’ on Bharti Airtel Ltd. This reflects the rating agency’s view that Bharti Airtel’s credit profile will continue to remain exposed to adverse regulatory policy decisions in India.
This is in spite of the company’s ability to strengthen its balance sheet organically through cash generation from its Indian and African operations, Fitch has said.
Fitch’s concern stems from fears that if the Department of Telecom approves the recommendations of the Telecom Regulatory Authority of India, Bharti Airtel may have to make higher regulatory payment fears.
There are two regulatory issues that might impact the company. First is the one-time charge for holding excess spectrum, which Fitch believes is likely. Bharti holds excess spectrum in 13 circles. The quantum of payment will depend on the price to be decided at the spectrum auction that is scheduled to take place in August. However, if one goes by TRAI’s recommended values for spectrum that were issued in April, the company may be required to pay between $750 million and $ 1 billion.
The second regulatory issue is the ‘re-farming and renewal fees’. TRAI has recommended ‘re-farming’ of spectrum – replacing the 900 Mhz spectrum band by 1,800 Mhz band and re-auctioning of spectrum in the 900 Mhz band when the existing licences come up for renewal in 2014.
Fitch notes that TRAI’s recommendation for an earlier execution of spectrum re-farming is “unlikely to be accepted by DoT”. Re-farming of spectrum is likely to be effective only in 2014 when Bharti’s licence comes up for renewal. But it could significantly affect the company’s future cash flow generation as well as its competitive strengths, as 900 Mhz is much more capex and opex-efficient than 1,800 Mhz. Bharti holds 900 Mhz spectrum in 16 out of 22 circles in India.
2012-13 capex could be higher
Fitch believes that Bharti’s capex for 2012-13 could be higher than the company’s own estimate of $ 3 b - $ 3.2 billion. The capex includes $ 1 b for African operations and the rest for India and South East Asia. Fitch expects higher investment requirements in Africa. “Lack of tower-sharing, inadequate infrastructure in key African markets, and larger capex plans of Bharti’s competitors are the reasons for higher capex needs,” says Fitch.
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