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Sunday, May 11, 2008

Fitch may downgrade Bharti Airtel


Fitch Ratings commented on Friday that it will monitor closely the disclosure by Bharti Airtel (Bharti, `BB+`/Stable) that it is in discussion with the shareholders of South Africa-based telecommunications company, MTN Group (MTN, National long-term rating `A+(zaf)`/Stable), regarding the potential acquisition of a stake in the latter. Fitch understands that the discussions are at a preliminary stage and that Bharti has not yet made any commitment to purchase a stake in MTN. However, in the event that Bharti does end up successfully acquiring a major stake in MTN, then depending on the extent of debt financing used to fund the acquisition; Fitch cautions that its ratings could come under downward pressure.

Given the early stages of the discussions, the likelihood of other competitive bids being placed, and the associated uncertainties surrounding any investment in MTN or its terms, Fitch has refrained from taking any formal rating action at this stage. The agency is monitoring this situation and would take rating action as warranted by any developments. Should the discussions currently underway lead to Bharti acquiring a stake in MTN, Fitch would consider the investment involved, the financing structure and the level of cash flows from MTN that would support any incremental debt assumed by Bharti for the transaction prior to reviewing its ratings.

South Africa-based MTN is one of the largest global systems for mobile communications (GSM) operators in Africa and the Middle East by number of subscribers. At end-December 2007, it had 61 million subscribers across 16 African countries, 5 countries in the Middle East and operations in Cyprus. MTN is also listed on the JSE (JSE). Currently, 63.7% of MTN`s shareholding structure is free float, with the largest individual shareholders being Public Investment Corporation (13.5%), Newshelf 664 (13.0%), and M1 (9.8%).

Shares of Bharti Airtel gained Rs 14.6, or 1.76%, to settle at Rs 842.2. The total volume of shares traded was 1,505,664 at the BSE. (Friday)