‘Bharti’s long-term forex rating faces downgrade’

FITCH MOVE MAY HIT CO'S FUND-RAISING PLANS

FITCH Ratings has said that Bharti Airtel's long-term foreign currency rating could be downgraded following the company's announcement of a potential acquisition of Zain's African operations for an enterprise value of $10.7 billion. 

    "Fitch expects the ratings to be downgraded by one notch assuming that the deal is completed and substantially debt funded, as this would increase Bharti's funds from operations (FFO) adjusted net leverage ratio to a level inconsistent with the current rating," the rating agency said in a statement. 
    Bharti's debt is rated by Fitch as 'BBB minus' which places it at the bottom of the so-called investment grade. The rating symbol BBB minus indicates that the company has adequate capacity to pay. 
    The category below investment grade is the 'speculative' or 'junk' category; territory that companies like to stay away from. A downgrade by Fitch would mean that Bharti's foreign debt would be dubbed as speculative, meaning that it may or may not be able to pay. 
    Amit Tandon, head of Fitch India, said the agency would seek clarification from Bharti once its funding plans became clearer. Bharti Airtel's spokesman said the company did not comment on actions of rating agencies. The move comes five days after rating agencies Crisil and Standard & Poor's placed Bharti's long-term bank facilities and debt programme on 'rating watch with negative implications' or RWN. 
    In the press statement, Fitch said in the event of a downgrade, the rating could be under further downward pressure reflecting the potential costs associated with any bid for a 3G licence and related capex. However, Fitch will seek to resolve the matter once the funding mix for the acquisition is finalised, which according to the company's announcement, is expected by March-end.