Moody's has placed on review for downgrade the 'Baa3' issuer and senior unsecured rating of Bharti Airtel and the ratings on the backed senior unsecured notes issued by Bharti's wholly-owned subsidiary, Bharti Airtel International (Netherlands) B V, the US-based agency said in a statement.
'Baa3' is the lowest investment-grade bond ratings, and any downgrade would put the rating in speculative grade.
"The review for downgrade is primarily driven by our expectation that Bharti's cash flow generation will remain weak and leverage elevated," Moody's VP and Senior Credit Officer Annalisa DiChiara said.
The review also reflects the company's low levels of profitability, particularly from its core Indian mobile operations, negative free cash flow and higher debt levels to fund capital spending, it said.
"Because we believe a more rational competitive environment in India's telecommunications market is unlikely over the next 12-18 months, the review also reflects uncertainty as to whether the company's profitability, cash flow situation and debt levels can improve sustainably and materially over the same period," said DiChiara, who is also Moody's lead analyst for Bharti.
The review on Bharti's rating will focus on the company's commitments and plans to substantially reduce debt levels significantly over a short period of time; and plans to turnaround the underlying Indian mobile operations.
While the majority of the USD 1.25 billion raised from the pre-IPO of its African business will be used to reduce debt, leverage will only improve marginally, Moody's said.
At the end of September, Bharti's consolidated net debt rose to Rs 1.13 lakh crore, compared to Rs 1.02 lakh crore for the previous quarter.