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Fitch: Indian Telcos Tower Sales are Credit Positive
March 30, 2017 / 6:55 AM / 6 months ago

Fitch: Indian Telcos Tower Sales are Credit Positive

(The following statement was released by the rating agency) SINGAPORE/SYDNEY, March 30 (Fitch) Indian telcos plans to sell tower assets or stakes in tower subsidiaries should provide headroom to allow data-related capex with less strain on companies' credit metrics, Fitch Ratings says. Bharti Airtel Limited (BBB-/Stable) announced yesterday that it has sold a 10.3% stake in its tower subsidiary, Bharti Infratel for USD952 million to KKR and Canada Pension Investment Board. Bharti will retain a 61.7% stake in Infratel. We expect Infratel's stake sale will benefit Bharti's March 2017 FFO-adjusted net leverage, which we forecast to be around 1.8x-2.0x (FY16: 1.8x; excluding USD5bn in deferred spectrum costs) - slightly below the threshold above which we may consider negative rating action. Bharti will use the proceeds to pay down some debt and to fund its USD235 million 2,300MHz spectrum acquisition from Tikona Digital in five Indian telecom coverage areas, or circles. Bharti had earlier acquired 43MHz of 1800MHz spectrum from Telenor India in seven circles to enhance its 4G spectrum portfolio. Vodafone India and Idea Cellular, which are merging, also intend to sell Idea's 11% stake and Vodafone India's 42% stake in India's largest independent tower company, Indus Towers, which is a joint venture between Bharti, Vodafone India and Idea. Such a sale would help reduce the debt at the Vodafone India-Idea combined entity. With a sale - and assuming opex and capex synergies - we estimate the combined entity's net debt/EBITDA should improve to around 3.0x-3.2x (pro forma 4.4x) with net debt of USD16.1 billion. Idea and Vodafone India intend to contribute about USD7.9 billion and USD8.2 billion of debt, respectively, to the combined entity. For the 12 months ending December 2016, the combined entity, on a pro forma basis, generated revenue of USD12.2 billion or 40% revenue market share - and USD3.6 billion in EBITDA. Reliance Communications Limited (Rcom, B+/Rating Watch Negative) is in the process of selling 51% of its tower business - Reliance Infratel Ltd (Infratel) - for USD1.6 billion, and intends to use the proceeds to pay down debt. However, the sale will not be sufficient to ease Rcom's financial stress, given its high indebtedness and plan to merge its wireless operations with Aircel Limited; we do not foresee FFO-adjusted net leverage reducing to below 4.5x for the foreseeable future. We continue to have a negative outlook on the Indian telecom sector as competition will continue to remain high, and consolidation is not likely to return any pricing power to the operators in the near term. The entry of Reliance Jio, a subsidiary of Reliance Industries Limited (RIL, BBB-/Stable), has accelerated industry consolidation. The ongoing consolidation is likely to leave four larger operators - Bharti, Jio, the combination of Vodafone India and Idea, and the combined Rcom and Aircel Limited. For more information, see Fitch's commentary "Fitch: Vodafone/Idea Merger Won't Ease Indian Telco Competition", published on 1 February 2017, and "Fitch: Jio Prompts More Consolidations with Bharti-Telenor Deal", published on 23 February 2017. Contact: Nitin Soni Director Corporates +65 6796 7235 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Steve Durose Managing Director Corporates +61 2 8256 0307 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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