Transaction to be completed by March 2019

S&P Global Ratings has given Bharti Airtel Ltd. (BBB-/Stable/–) rating saying it is unaffected by the proposed acquisition of the consumer telecom business of Tata Teleservices Ltd.

“We believe the deal to be neutral to Bharti’s leverage in fiscal 2018 and 2019 (year ending March 31, 2019),” said S&P.

“We expect the transaction to be completed in fiscal 2019, subject to regulatory approvals.

“Bharti will assume a small portion of the deferred spectrum liabilities and will not assume any debt obligations of Tata Teleservices.

“We estimate Bharti’s ratio of funds from operations to debt will remain 20%-22% in fiscal 2018. We expect the ratio to improve marginally in fiscal 2019 but remain at 22%-24%,” it said.

The proposed acquisition will boost Bharti’s India subscriber and revenue market share to 31.9% and 40.6%, respectively, from 27.7% and 34.8%, in the three months ended June 30, 2017.

This deal will also reduce the gap between Bharti and the new combined entity of Idea Cellular Ltd. and Vodafone India Ltd.

The Idea-Vodafone combine had a subscriber and revenue market share of 34.6% and 44.0%, respectively for that period.

At the same time, we note that market share statistics are subject to significant change, given the intense price competition in the Indian telecom market.

“We believe Tata Teleservices’ spectrum and back-haul fiber network will boost Bharti’s network capacity,” said S&P.

‘We believe Bharti’s network can easily absorb the additional 40 million customers following the deal.

“We also expect Bharti to benefit from synergies over the next two years, as it reduces the overlap of operations between itself and Tata Teleservices.

“However, in our view, this deal increases integration risk for Bharti because the company will be simultaneously integrating the operations of Telenor India (acquired in fiscal 2017) and Tata Teleservices over the next 12-18 months, while responding to the intense competition.

“We expect Bharti to be able to manage the integration risk because it has successfully managed such deals in the past, particularly in the African markets,” said the rating agency. fii-news.com