Thursday, January 14, 2010

Warid Acquistion Won't Affect Bharti Ratings

­Fitch Ratings has commented that Bharti Airtel's acquisition of a 70% stake in Bangladesh's Warid Telecom will not have an impact on the former's ratings. Fitch has a Long-term Issuer Default Rating of 'BBB-' with a Stable Outlook on Bharti, and notes that the incremental capex and Warid's existing debt will not materially impact Bharti's credit profile. However, the agency is currently monitoring the negative impact on Bharti's revenues stemming from irrational pricing activity by the operators in India during October-December 2009, and the pending cost of 3G pan-India license fees and its impact on Bharti's credit profile; details of India's 3G auction is expected to be announced sometime in 4QFY10.

Under the agreement with Warid, the acquisition will be partly funded by the purchase of existing shares held in Warid by the Dhabi group for a nominal consideration and the balance by way of an issuance of fresh shares at par. The acquisition will give Bharti the management and board control of the company. Bharti will make a fresh investment of USD300m to expand the network coverage and capacity of Warid in Bangladesh. Although, Bharti has yet to confirm the period over which such capex would be made, Fitch expects the same to occur over a period of 2-3 years. Fitch does not expect the incremental capex to significantly change Bharti's capex plans. Further, Fitch notes that the maximum existing debt on Warid's balance sheet is USD300m, and accordingly the same is unlikely to materially impact Fitch's forecasted net leverage expectations for Bharti.

According to the Bangladesh Telecommunication Regulatory Commission (BRTC), Warid is the fourth-largest telecom operator in Bangladesh, with 2.92 million subscribers and a 5.8% subscriber market share at end-November 2009. It offers mobile services in all 64 districts of the country. At end-November 2009, the total subscriber base in Bangladesh was 50.55 million, with a penetration of 31.6%.

Bharti is one of India's leading private sector telecommunications providers, with integrated and diversified operations across mobile, fixed-line access, consumer broadband, direct-to-home television, long-distance and enterprise services. At end-November 2009, Bharti had a subscriber market share of 22.9% and a revenue market share of 33%. Bharti's FY09 reported revenues, EBITDAR and net income were INR373.5bn, INR170.6bn and INR78.6bn, respectively.

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