Bharti's Fitch Ratings remains 'Negative' post Qualcomm's deal

Fitch comments that Bharti Airtel Long-Term Foreign-Currency Issuer Default Rating of 'BBB-' with Negative Outlook is unaffected even after the acquisition of 49% stake in Qualcomm's broadband wireless access (BWA) spectrum assets in India for USD 165 million. Bharti's ratings is likely to be better when it increases its ownership of Qualcomm's BWA Indian entities to 100% by end-2014.

"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. He added, "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 debt."

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).

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.