Moody's backs Bharti Airtel's Telenor India acquisition

New Delhi: Bharti Airtel's acquisition of Telenor India is "credit positive" and will enhance the company's position in the highly-competitive Indian mobile telecom market, Moody's Investors Service said today.

"... Bharti's spectrum holding will increase in seven circles, and its subscriber market share will increase by around 2 per cent (based on December 2016 figures), enhancing the company's leading market position in India's highly competitive mobile telecom market, a credit positive, and providing further growth potential in these areas," said Annalisa Di Chiara, Moody's Vice-President and Senior Credit Officer.

Yesterday, telecom operator Bharti Airtel announced its decision to acquire Norwegian Telenor's India unit, signaling a fresh round of industry consolidation that has intensified in the wake of disruptive entry of newcomer Reliance Jio.

Telenor has a customer base of 44 million in seven circles of Andhra Pradesh, Bihar, Maharashtra, Gujarat, Uttar Pradesh (East), Uttar Pradesh (West) and Assam. The India business was a loss-making proposition for the Norwegian firm.

Airtel will not make any cash payment for Telenor's India unit, but will take on Rs 1,600 crore future liability towards spectrum licence fee and mobile tower rentals. Its revenue market share will rise to 35.6 per cent following the acquisition of Telenor.

"Importantly, Telenor's 43.4 MHz spectrum in the liberalised 1800 MHz band across seven circles with 16 years of remaining licence period will bolster Bharti's spectrum footprint, service offering and network coverage," Moody's noted.

The acquisition is a non-cash deal involving Bharti taking over outstanding spectrum payments and other operational contracts like tower leases, and Moody's does not expect it to have a material impact on the company's consolidated leverage.

Moody's said that although Jio's new tariff plan post April 1 will improve industry-wide average revenue per user in the longer term, the intense price competition will persist over the next few quarters as incumbents respond to protect their subscriber base.

"... We expect that Bharti's profitability will remain under pressure. However, cash proceeds from monetization activities -- including divestments in subsidiaries such as Bharti Infratel  will help reduce debt on an absolute and relative basis... Any delay in expected deleveraging will put negative pressure on the rating," it said.

Downward pressure could also arise with further competition in any of its key markets, but particularly for the Indian wireless business, it added.