Bharti Airtel’s Borrowing Costs Rise

Bharti Airtel Ltd.'s cost of borrowing rose even as promoters infused funds in the telecom operator.

Billionaire Sunil Mittal-controlled wireless carrier's term loan and commercial paper borrowings, which carry a relatively higher rate of interest than most other debt, increased as of March over a year earlier, according to its annual report for 2018-19.

This could be because of short-term loans taken ahead of fundraising, said Rajiv Sharma co-head of institutional equity research at SBICAP Securities. But Bharti Airtel's total interest costs could fall in the ongoing financial year as it would have used proceeds from rights issue and the initial public offering of Airtel Africa to repay debt, he said.

In February, Moody's Investor Service downgraded the wireless carrier's credit rating by a notch to a non-investment grade—Baa3 to Ba1. Proceeds from recent capital-raising activities will strengthen balance sheet and improve cash flows, but rating will be driven by operational improvement in Indian mobile market, it said.

There has been no let-up in the tariff war unleashed by Mukesh Ambani's Reliance Jio Infocomm Ltd., worsening the financials of its rivals.

The free cash flow of Bharti Airtel's Indian mobile operations has been falling for at least the last five financial years. And it turned negative in the last two financial years—a period marked by competition from Reliance Jio.

In the ongoing financial year, Bharti Airtel's borrowings worth Rs 38,204 crore would come up for repayment, a jump of nearly 45 percent over the previous fiscal. It has to repay nearly a third of its total gross debt during the year.

Recent fundraising and the Airtel Africa IPO will help repay nearly 96 percent of the debt up for repayment. In February, Bharti Airtel raised Rs 32,000 crore—Rs 25,000 crore by issuing new shares to promoters and Rs 7,000 crore through foreign currency-denominated perpetual bonds. The Africa unit IPO in June gave it Rs 4,600 crore.

Bharti Airtel's unforeseen liabilities also jumped last fiscal because of higher claims from the Department of Telecommunications. Total contingent liabilities jumped 31 percent over the previous fiscal, while payments owed to the DoT—on spectrum—more than doubled.