NEW DELHI: Rating agencies Fitch and Moody’s Investors Service have said that sale of tower assets can help telecom companies shed debt but there may be no near-term improvement in profitability due to heightened competition after Reliance Jio Infocomm’s entry.
The agencies on Thursday said Bharti Airtel’s stake sale in its tower subsidiary and similar moves planned by Idea and Vodafone India will help the telcos reduce debt.
Bharti Airtel’s on Wednesday sold 10.3% stake in Bharti Infratel for $952 million to KKR and Canada Pension Investment Board. Idea and Vodafone India are reportedly planning to sell stake in Indus Towers, the country’s largest telecom tower company.
Earlier this month, Gopal Vittal, Bharti Airtel’s chief executive for India and South Asia, had said the sector’s financial health was at its weakest ever with a massive debt burden that exceeds Rs 4.5 lakh crore.
New York-based Fitch said that a negative outlook on the Indian telecom sector will remain as the competition will continue to be high, and consolidation among telcos was unlikely to return any pricing power to the operators in the near term.
“Bharti Infratel’s stake sale will benefit India’s top telco’s March 2017 FFO-adjusted net leverage, which is estimated to be around 1.8x-2.0x, slightly below the threshold above which we may consider negative rating action,” Fitch said. It said telcos’ plans to sell tower assets should provide headroom for data-related capex, as it would ease the strain on companies’ credit metrics.
“Bharti Airtel’s stake sale is aligned with commitment to reduce absolute debt levels. The net effect is muted by the company’s recently-announced acquisitions and intense price competition which is pressuring industry-wide operating profits, Annalisa Di Chiara, vice-president at Moody’s, said.
Sunil Mittal-promoted Bharti Airtel is aggressively consolidating its position to maintain its market dominance, and has recently acquired Tikona Digital Networks’ 4G business and 350 sites, in five telecom circles for $245 million.