Airtels debt to rise by $2 billion due to spectrum buys: Moodys

Telecom major Bharti Airtel's debt will increase by $2 billion (over Rs 13,300 crore) due to the recent spectrum purchase but cash flows from operations and monetisation activities are likely to reduce this level in next 6-12 months, Moody's Investors Service said on Wednesday.

Bharti Airtel, India's largest mobile operator with over 257 million subscribers, won 173.8 Mhz of airwaves for Rs 14,244 crore in the just-concluded spectrum auction.

It acquired mobile airwaves in 1800MHz, 2100MHz and 2300MHz bands and now has 4G and 3G spectrum in all circles.

"Although Bharti's debt levels will rise by around $2 billion in conjunction with the funding of its spectrum wins, this amount can be accommodated in the rating for a short time, as cash flow from operations and proceeds from monetisation activities are expected to reduce debt levels considerably within the next 6-12 months," Annalisa DiChiara, Moody's Vice President and Senior Credit Officer said.

Moody's expects Bharti to go for deferred payment option, which will minimise upfront cash outflow and stretch out payments over a 12-year period. This allows Bharti to make upfront payments of 50% (about Rs 7,100 crore), which Moody's expects "will be largely debt-financed".

The balance Rs 7,100 crore will be payable in 10 annual installments after a 2-year moratorium, Moody's noted.

It said that Bharti's high leverage is "somewhat mitigated" by the financial flexibility the company has associated with the value of its about 72% stake in Bharti Infratel, which could be monetised.

The market capitalisation of Bharti Infratel stood at about Rs 69,800 crore ($10.5 billion) as of October 11, valuing Bharti's stake at about Rs 50,200 crore ($7.5 billion), it said.

"To put this into perspective, Moody's notes that the latent value of Bharti's stake in Bharti Infratel represented around 82% of its bank and bond debt of Rs 61,400 crore as of March 2016," it said.

The outlook is stable, Moody's said adding that it expected stable cash flow generation for Indian operations and the application of the cash proceeds from the monetisation activities to reduce debt on an absolute and relative basis.