'Spectrum Payout to Offset Airtel's African Tower Sale Gains'

The huge payout for radiowaves, for which the auctions begin tomorrow, will offset the benefit that Bharti Airtel was likely to gain on its heavily debt-laden balance sheet by selling its African tower business recently, says a report.

"Bharti Airtel's agreements to sell 83 percent of its tower portfolio in Africa will allow for significant de-leveraging, but spectrum payments from the March auctions have the potential to offset the expected debt reduction," Moody's Investors Service said in a report on Tuesday.

"The four agreements to sell 12,500 towers will allow Bharti to focus on its core business as a cellular telecom operator, and enable it to reduce its balance sheet debt," vice-president and senior analyst at the agency, Annalisa Di Chiara, said.

She further said that while Bharti's operating costs for its towers will decline post-sale, its rental costs will rise. Also, spectrum auction payments, which she estimates at $2-3 billion, could offset the debt reduction.

Excluding the deferred payment liabilities to the government, net debt on the company's book stood at $8.35 billion, as of the December quarter.

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The country's largest and world's fourth largest telco, rated Baa3 by the agency, has already deposited more than Rs. 3,500 crores to the government in the run-up to the fiercely bid auctions. It had also said the entire proceeds from the sales will be used to retire high cost debt.

She further said although Bharti has not disclosed details of the sales agreements, the agency expects it will receive around $2.2 billion from the tower sales. Bharti has committed to use all proceeds from the tower sales to reduce debt.

"Based on its assumption of $2.2 billion in sales receipts, we expect Bharti's adjusted leverage will initially decline to 2.5 times from 2.9 times for the fiscal, reflecting the debt reduction," the report said, adding that however the disposals will improve Bharti's debt currency mix and improve its still trailing African operations.

If the Sunil Bharti-led company uses the sale proceeds to reduce its US dollar debt, the proportion of US dollar debt should trend below 40 per cent by the end of the fiscal from around 60 per cent last fiscal, thus helping it reduce the currency mismatch.

Bharti has licences expiring in six circles in 2015 and 2016, and the next round of spectrum auctions is slated for early March 2015. Moody's expects the total amount payable for the spectrum licenses--both to renew expiring licenses and new spectrum wins--could be in the $2-3 billion range.

This would cause adjusted debt to return into the $17 billion range and adjusted debt/EBITDA to climb back to 2.9 times.