Tag: S&P Global Ratings

Bharti Airtel’s fund raising substantially mitigates pressure from AGR lawsuit: S&P Global Ratings

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Bharti Airtel’s recent USD 3 billion (about Rs 22,600 crore) fund raising has substantially alleviated pressure due to the Adjusted Gross Revenue (AGR) lawsuit, according to S&P Global Ratings.

The India-based telecom operator, however, is yet to demonstrate a longer-term and substantive recovery in performance from the protracted weakness in the country’s telecom sector, it added.

Bharti Airtel ratings has been affirmed with negative outlook, and it has been removed from CreditWatch.

“We affirmed the ratings and removed them from CreditWatch because we view Bharti Airtel’s recent USD 2 billion equity raising and USD 1 billion issuance of foreign-currency convertible bonds as having substantially mitigated the impact of the USD 4.8 billion lawsuit,” it said in a statement.
S&P Global Ratings further said it believes that downward pressure on the ratings arising from this event has been lifted.

“The negative outlook reflects our view that Bharti Airtel’s FFO-to-debt (funds from operations to debt) ratio has not recovered to well above 20 per cent from a prolonged weakness since fiscal 2018,” it said.

The longer-term implications on the company’s performance owing to substantive tariff hikes in December 2019 remains uncertain.

The SIM consolidation is inevitable given price hikes from all three major Indian telecom operators and the multiple SIM cards many subscribers hold, the statement said.

“The pace of improvement in Bharti Airtel’s performance could be slower than we expect, due to potential subscriber loss and the reduction in subscribers’ consumption amid weakening economic conditions,” it said.
It expects Bharti Airtel’s adjusted EBITDA (Earnings before Interest Tax

Depreciation and Amortisation) to be Rs 450 billion-Rs 470 billion (Rs 45,000 crore-Rs 47,000 crore) in fiscal 2021, up about 15 per cent from the levels it had estimated for fiscal 2020.

“There are budding signs of improvement. Bharti Airtel’s average revenue per user in India was Rs 135 for the third quarter ending December 2019, up from Rs 128 in the previous quarter. However, our economists have revised India’s GDP forecast for 2020 downward to 3.5 per cent from 6.5 percent.”

“We believe that consumers may temporarily reduce recharging in the weakening economic environment, given India’s predominantly prepaid market,” S&P Global Ratings said.

It has also estimated that Bharti Airtel’s annual capex will decline to Rs 180 billion-Rs 200 billion annually after two to three years of accelerated 4G network deployment in India.

“Our base case does not include spending on 5G spectrum auctions due to the uncertainty in amount and timing. We have also considered Bharti Airtel’s public stance that it will not be participating in 5G auctions likely slated for 2021 because the current reserve prices are too high,” it said.

Participation in such spectrum auctions–even if payments are staggered to preserve cash flows–will be a drag on its leverage.

“The negative outlook reflects the risk that Bharti Airtel’s performance improvement may not happen in line with our expectations, and its FFO-to-debt ratio may not recover to well above 20 per cent by fiscal 2021,” it pointed out.

The AGR dues arose after the Supreme Court, in October last year, upheld the government’s position on including revenue from non-core businesses in calculating the annual statutory liabilities of telecom companies, a share of which is paid as licence and spectrum fee to the exchequer.

Last month, the apex court rejected the AGR dues determined by telcos through their self-assessment exercise and ordered them to pay the principal together with interest and penalties.

The Department of Telecommunications (DoT), according to its own submission to the apex court recently seeking relief in payment tenure, has put dues of the three companies — Bharti Airtel, Vodafone Idea and Tata Group — at Rs 1.19 lakh crore cumulatively.

The dues estimated by DoT for Bharti Airtel and Telenor was pegged at Rs 43,980 crore, while that of Vodafone Idea was Rs 58,254 crore, and Tata Group of companies at Rs 16,798 crore outlined as ‘total demand of DoT incorporating CAG and special audit as on October 2019’.

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S&P cuts India GDP growth forecast for FY21 to 5.2%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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S&P Global Ratings on Monday cut its estimate for India’s GDP growth in the fiscal starting April 1 to 5.2 percent from its earlier estimate of 6.5 percent, as it saw the outbreak of coronavirus costing economies around the globe.

It put “the total and permanent income loss for Asia-Pacific from COVID-19 at approximately USD 620 billion.”

“This loss will be distributed across sovereign, bank, corporate and household balance sheets,” it said but did not give country-wise break up its estimated loss.

S&P said it has revised estimates for real GDP, inflation and policy interest rates for Asia-Pacific nations.

For India, it estimated a 5.2 percent growth in 2020-21 (April 2020 to March 2021), down from the previous estimate of 6.5 percent. In the following year, it projects a 6.9 percent growth, down from 7 percent earlier for 2021-22.

For the current fiscal which ends on March 31, it put the real GDP estimate at 5 percent.

It estimated a 7 percent growth in 2022-23 and 2023-24 fiscal years.

The inflation rate was seen moderating to 4.4 percent in the next fiscal from 4.7 percent in the current. It would further drop to 4.2 percent in 2021-22 but rise to 4.4 percent in the following financial year and then to 4.5 percent in the year thereafter.

Key policy interest rates are projected to fall to 4.25 percent in 2020-21 from current 5.15 percent but would rise to 4.5 percent in the 2021-21 financial year.

“S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak in June or August, and we are using this assumption in assessing the economic and credit implications,” it said.

The rating agency said the measures to contain COVID-19 have pushed the global economy into recession and could cause a surge of defaults among nonfinancial corporate borrowers.

S&P said a recession across Asia-Pacific is now guaranteed due to a deep first-quarter shock in China and the shutdown of activities across G7 economies.

“S&P Global Ratings believe this, together with a loss of household and business confidence in these economies, will translate into severe and more persistent supply and demand shocks across the region. Unemployment rates will rise.”

Domestic demand will be hit almost everywhere by restrictions on movement and risk aversion. “External spillovers will be felt through four channels – people flows — travel, tourism, and education; trade-demand for the region’s exports; supply chains–disruptions to production; and commodity prices.”

Standard and Poor’s (S&P) joins a chorus of international agencies that have made a similar cut in growth estimates in recent days.

Fitch Ratings had on Friday slashed its growth forecast for India from 5.6 percent to 5.1 percent for 2020-21.

Moody’s Investors Service last week lowered India’s GDP growth forecast for the 2020 calendar year to 5.3 percent from 5.4 percent it had projected earlier.

The Organisation for Economic Cooperation and Development (OECD) has cut its 2020 growth projections for India to 5.1 percent.

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Coronavirus could erase $211 billion from Asia-Pacific economies, says S&P

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A fast spreading coronavirus outbreak could knock $211 billion off the combined economies of the Asia-Pacific, with Japan, Hong Kong, Singapore and Australia among the most exposed, S&P Global Ratings said on Friday.

S&P cut its 2020 growth forecast for China to 4.8 percent from the previous estimate of 5.7 percent. It forecast Australian growth to slow sharply to 1.2 percent from an already below-trend 2.2 percent in 2019.

Japan would take 0.5 percentage point hit and Korea a 1 percentage point knock.

“The balance of risks remains to the downside due to local transmission, including in economies with low reported cases, secondary transmissions in China as people return to work and tighter financial conditions,” S&P said in a report.

In other forecasts, Hong Kong’s economy would likely contract by -0.8 percent in 2020, Singapore’s would flat line, and Thailand’s expansion likely slow to 1.6 percent.

The coronavirus epidemic, which emanated from China’s Hubei province, has claimed more than 3,000 lives worldwide in less than three months, prompting monetary policy easing in major economies including the United States.

S&P did not cut growth forecasts for emerging markets of Indonesia, Malaysia, the Philippines and India, citing the fact that reported infections in those countries were still low.

However, it noted the outlook could quickly deteriorate if the low level of cases was due to minimal testing and if those countries were swept up in financial contagion.

“We have already had a taster of what can happen with overshooting exchange rates in response to a pick-up in world’s fear gauge,” it said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

S&P Global Ratings says India’s fiscal deficit situation precarious

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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S&P Global Ratings has reaffirmed India’s rating at ‘BBB-’, showing that the country has adequate capacity to meet its financial commitments. The outlook on the long-term rating is stable, it said.

Andrew Wood of S&P Global Ratings said India’s fiscal position indeed remains precarious. “Looking at the fiscal, of course, there have been some challenges, especially over the past 9 months, and probably looking forward to the next fiscal year as well,” he noted.

“We do see elevated fiscal deficit persisting as well as net general government indebtedness. We are expecting limited consolidation over the next two years too,” he added.

Wood further said that looking from a sovereign ratings perspective, it is a bit more structural in nature. “We have been incorporating the weakness with India’s fiscal settings into the ‘BBB-’ ratings for a long time. So, this is a bit of a road bump.”

Wood said it is certainly a concern on the fiscal side but it is expected to abate as the economy improves. “We expect it to begin to abate as the economy recovers over the next two years and we will eventually see relatively lower fiscal deficits as well.”

Growth drivers

The Indian economy has a long history of such fluctuations in growth and judging by past precedence, it is likely nearing the end, noted Wood. “High-frequency indicators are starting to turnaround, especially the PMI that we have seen lately, as well as sentiment.”

Real GDP growth is also likely to gradually recover towards longer-term trend rates, but at a gradual rate, he said.

S&p Global Ratings expects real GDP growth at 5 percent for FY20 and 6 percent for FY20 before a more powerful acceleration beyond that going above 7 percent per year.

India’s wide range of structural trends, including its healthy demographics and competitive unit labour costs, works in its favour, he said. “We also see a more favourable corporate tax regime which was introduced in September of last year being particularly supportive of manufacturing firms and that should reinforce growth alongside additional fiscal and monetary easing that we have had over the past year too.”

There are constructive developments on the regulatory front especially with regards to the financial sector, which is probably set into some of the slowdown and loss of momentum in the economy over the past two years, noted Andrew. “But that we feel should be more constructive over the medium term.”

Red flags

“What we are looking at from our perspective is the general government deficit is above 7 percent of GDP and certainly that is again a precarious position to be in,” he said.

I”f we were to observe that this fiscal deficit is going to be significantly higher even then what we are forecasting right now, we are forecasting somewhere in the range of 7-7.5 percent per year.”

“If it goes well beyond that, we could become more concerned and that could begin to put downward pressure on the ratings.”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Rating agency S&P Global says India’s corporate tax cuts ‘credit negative’

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Rating firm S&P Global said on Friday India’s move to cut corporate tax rates was a “credit negative development” despite potentially boosting the economy as it will widen its fiscal deficit.

The cuts are likely to “boost sentiment and support the broader economy at a time when momentum is flagging”, said Andrew Wood, director of sovereign and international public finance ratings at S&P Global Ratings.

“Nevertheless, we believe that the cuts will invariably lead to higher central and general government fiscal deficits, absent equivalent revenue generating measures,” Wood told Reuters.

The government slashed corporate taxes on Friday, giving a surprise $20.5 billion break aimed at reviving private investment and lifting growth from a six-year low that has caused job losses and fuelled discontent.

The news sent shares sharply higher while bond yields spiked to a near three-month peak on speculation that the government may have to borrow more to meet its expenditure needs. The measures will mean a revenue loss of 1.45 trillion rupees for the current year.

India is likely to miss its fiscal deficit target for the current financial year, despite receiving an additional dividend from the central bank, five government officials and advisers told Reuters this month, as tax collections have sunk amid a sharp slowdown.

The sources had said the government could, toward the end of 2019, be forced to raise the fiscal deficit target to 3.5% of GDP from 3.3% after economic growth fell to a six-year low of 5% in the April-June quarter.

Rating firm Moody’s, however, said India’s move will boost net income of companies and was “credit positive” for them.

The “extent of final impact on credit profiles of Indian corporates will depend on whether they utilise the surplus earnings for reinvestment in business, debt reduction or high shareholder returns,” said Vikas Halan, senior vice president of corporate finance group at Moody’s Investors Service.

The government has been trying to boost private capital expenditure which has struggled due to a lack of recovery in corporate earnings and a sharp drop in consumer demand.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

GST will not reduce deficits of Indian state governments significantly, says S&P

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Goods and Services Tax (GST) regime in India is not likely to reduce the deficits of state governments significantly, amid large and growing expenditure mandates for the social sector as well as capital spending, says a report.

According to S&P Global Ratings the institutional framework for Indian states is evolving, but there is structural deficits due to persistent revenue expenditure mismatch.

S&P Global Ratings credit analyst YeeFarn Phua in the report titled “Public Finance System Overview: Indian States” noted that the passage of the GST bill in 2017 is a major overhaul of tax structure and will help to widen the tax base and improve revenues of state governments.

“However, states will continue to run large deficits because a significant part of this imbalance is from the expenditure side. States are unable to cut expenditures because of large and growing expenditure mandates for the social sector as well as capital spending. Therefore, the revenue-expenditure gap will remain large,” said Phua.

Further, policy implementation remains sub-par in India, the report noted.
Another significant development in recent years has been the adoption of an amended Fiscal Responsibility Management (FRBM) Act, which forms the fiscal framework, in March 2018, the report noted.

Under the amended FRBM Act, the government will target a debt-to-GDP ratio of 60 percent with the split being 40:20 for central government and states.

Further, the government will use fiscal deficit as the key operational target, the report said but added that the FRBM committee lacks the authority to mandate its core recommendations.

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Tata Motors expects better JLR earnings in Q4FY19, shares rise 6%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of Tata Motors rallied over 6 percent after unit Jaguar Land Rover said it expects improved financial results and significant positive cash flow in the fourth quarter of 2019. At 12:45 PM, the stock surged 5.97 percent to Rs 184.65 per share on the NSE today.

In the press release, UK-based JLR also stated, “Jaguar Land Rover is continuing to execute its product plans and Project Change turnaround strategy to deliver £2.5 billion of cash flow improvements by March 2020.”

JLR’s earnings guidance comes days after S&P Global Ratings had downgraded the company to ‘B+’ with credit watch negative, citing weak profitability.

Another reason for the stock to rally is the anticipation of sales pick up in China. In fact, China’s manufacturing data indicates returns to growth in March as China purchasing managers index (PMI) rose to 50.8 in March vs 49.9 in February, rising 1.3 percentage points. It is the strongest pace of expansion in last 8 months.

30 percent of JLR revenues come from China, thus, this PMI data stand as proof of better numbers from the automobile giant this year.

Catch all the latest and live updates here.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Infusion of Rs 25,000 crore not enough to stabilise Bharti Airtel rating

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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S&P Global Ratings on Wednesday said Bharti Airtel’s proposed rights issue of up to Rs 25,000 crore is not enough to stabilise its credit rating.

The rating agency said that there is negative outlook, an indication of rating downgrade, which looks at renewed competition and higher capital spending by the company that will keep its debt level up.

“S&P Global Ratings believes the proposed rights issue (of Rs 25,000 crore), if successful, would go a long way in restoring Bharti’s balance sheet and shoring up leverage. However, the negative outlook on the rating captures the risk of renewed competition and elevated capital spending by Bharti, which may keep the leverage elevated,” the rating agency said.

The rating headroom remains limited despite the sizable equity infusion, it noted.

The board of Airtel last week approved fund-raising plans of up to Rs 32,000 crore through a combination of rights issue and bonds — a move that will help the company take on market competition intensified by Reliance Jio, and cut debt.

The net debt of Bharti Airtel at the end of the third quarter of 2018-19 stood at Rs 1.06 lakh crore.

Airtel’s fund-raising plans entail rights issuance of up to Rs 25,000 crore and Perpetual Bond with equity credit of up to Rs 7,000 crore (about $1 billion).

“The terms of Bharti’s proposed $1 billion perpetual bonds remain unknown. We will assess the impact of those bonds on the company’s capital structure and leverage at the time of their issuance,” S&P Global Ratings’ credit analyst Ashutosh Sharma said.

The analyst said that Bharti’s higher capital expenditures over the past few years have weighed on its debt capacity.

However, the company may complete its 4G-rollout over the next two to three quarters, which could mean a sizable reduction in its capital spending.

“The Indian telecommunications market is showing signs of stabilizing, although it remains competitive. We think the negative growth that was spurred by price competition in the Indian telecommunications industry might be behind us, given that tariffs seem to have bottomed out,” Sharma said.

Another credit rating agency Moody’s Investor Service had come out with different perspective on the proposed rights issue.

Moody’s said that the Airtel’s proposed rights issue is “credit positive” as it will enable the company to pare debt and improve liquidity.

The Moody’s statement said it still expects a significant portion of proceeds from the rights issue to be used to lower debt, strengthening Airtel’s balance sheet and providing the company with greater financial and operational flexibility for its Indian operations.

“But Bharti’s ratings are unlikely to change in the near-term as we expect leverage will remain elevated while profitability and cash flow of the company’s core Indian mobile segment remain under pressure,” it said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

S&P foresees ‘credit risks’ for PSUs supporting govt exchequer via share buybacks

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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S&P Global Ratings on Tuesday said corporate activities that are designed to support the government coffers — such as share buyback — by PSUs are ‘credit negative’ for such entities.

In the past three months, 10 public sector undertakings (PSUs) have announced or executed buybacks for a cumulative amount of Rs 15,000 crore, which will count toward the government’s target of Rs 80,000 crore from disinvestment of state-owned entities.

“S&P Global Ratings foresees credit risks at Indian SOEs (state-owned enterprises) from corporate activity designed to support the Indian government’s budgetary coffers,” the US-based rating agency said in a statement.

The impact on the respective companies can vary depending on the size of cash outflow, it added.

“Extracting cash from SOEs decreases their financial flexibility in a stress scenario, which — at least over the short term — is credit negative at the firm level,” S&P said.

It said while extraction of existing excess capital in the form of dividends generally has an impact only on the short-term business of SOEs as dividends are discretionary and can be scaled back if future profitability is low.

“In contrast, we believe that debt-funded share buybacks, mergers or acquisitions have longer-term implications. Further, reduced government linkages to divested firms may lower the likelihood of government support in a stress scenario,” S&P said.

The share buybacks announced so far, including the Rs 4,000-crore offering at Oil and Natural Gas Corp (ONGC), are manageable within the credit profiles of respective PSUs, it added.

“However, the risk of a large and disruptive payout increases as the government runs out of time on its SOE stake sale target for the financial year,” S&P said.

S&P said Power Finance Corporation (PFC) capitalisation is under pressure due to the government’s direction to acquire REC, another SOE that finances the country’s power sector.

“While we await the final acquisition cost, PFC’s leveraged buyout of the government’s 52 per cent shareholding in REC led us to place the rating on CreditWatch with negative implications,” it said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow