INSUBCONTINENT EXCLUSIVE:
for the industry, Fitch Ratings said.However, these are unlikely to be sufficient to offset the impact of a recent Supreme Court judgement
for incumbents Bharti Airtel (BBB-/Rating Watch Negative) and Vodafone Idea Ltd.The Supreme Court ruled against the telcos in a 14-year-old
dispute on the definition of adjusted gross revenue (AGR) on which the incumbent operators must pay hefty dues to the government
Reliance Jio (Jio), a subsidiary of Reliance Industries Ltd (RIL, BBB-/Stable) is not affected by the ruling and is likely to continue to
gain revenue market share, which will support RIL's deleveraging plans.Fitch has a negative outlook on the sector for 2020 primarily due
to heightened financial risk associated with the large unpaid AGR-related dues
On November 20, 2019, the government announced plans to suspend payment of deferred spectrum dues for two years, which will ease cash flow
pressure on all three telcos.Vodafone Idea and Bharti will benefit the most as their negative free cash flow will reduce by $1.7 billion and
$850 million a year, respectively, for the financial year ending March 2021 (FY21) and FY22
The incumbents are likely to file a review petition in the Supreme Court and have also approached the government to seek other forms of
relief including waiver or grant of deferred payment terms for the AGR dues and a reduction of licence fees and spectrum usage
charges.Despite the tariff hike, Fitch still believes it will take negative rating action on Bharti if it pays the AGR dues within three
months and funds the payments entirely by debt.This is because Bharti's FFO adjusted net leverage will then deteriorate to around
3.0x-3.3x in FY20 - significantly higher than the threshold of 2.5x, above which we would take negative rating action
We will resolve the Rating Watch Negative on Bharti's ratings once we have greater clarity on the timing and financial impact of the
regulatory dues and a ny remedial measures.The divergence between Bharti's and Vodafone Idea's financial performance continued in
2QFY20, while Jio continued to report strong revenue and EBITDA growth
During 2QFY20, Bharti reported a 1 per cent rise in revenue and 3 per cent growth in like-for-like EBITDA quarter-on-quarter (q-o-q).This
was mainly driven by an 8 per cent increase in 4G subscribers and largely flat blended tariff Subscriber base
In comparison, Vodafone Idea's 2QFY20 revenue and EBITDA declined further by 4 per cent and 15 per cent respectively q-o-q, as it lost 90
lakh customers while its blended tariff was flat.Vodafone Idea's 2QFY20 EBITDA of Rs 1,000 crore benefitted from cost synergies from the
merger of the two companies."We expect Vodafone Idea to continue to struggle to improve its EBITDA amid fierce competition, limited
financial flexibility to invest and a shrinking subscriber base," Fitch said.Vodafone Idea disclosed that it had to reclassify some
long-term debt to current debt as it failed to meet certain financial covenants in bank loan documents, and it is in discussion with the
lenders to request waivers.Jio continued to report solid financial performance with 2QFY20 revenue rising by 6 per cent q-o-q and EBITDA up
Rs 120 even as data consumption increased to 12GB per month per user and average voice consumption was 789 minutes per month per user, lower
than Bharti's 848 minutes.ARPU per month is unsustainably low in Indian at about Rs 120 ($1.7) - one of the cheapest in the
while EBITDA would grow by $200-250 million
Jio is likely to benefit more from the tariff hikes as it is rapidly gaining market share, and is on its way to achieve at least 4,000 lakh
subscribers and around 40 per cent of industry revenue by 2H20," Fitch said.Fitch revised the Outlook on RIL's Long-Term Local-Currency
Issuer Default Rating (IDR) of 'BBB' to Positive from Stable in August 2019 based on expectation of lower leverage as RIL's pace of
investment slows and its operating cash flow rises.The benefits from the tariff hike and two-year moratorium of spectrum payments should
help RIL further deleverage towards 1.5x net adjusted debt/operating EBITDAR, the level below which Fitch would consider positive rating
The company's Standalone Credit Profile is 'bbb' and its Long-Term Foreign-Currency IDR of 'BBB-' is constrained by India's Country
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