New Delhi: Rating agency Fitch on Friday said that telecom major Bharti Airtel's cash flow generation could be affected negatively due to its exposure to "adverse regulatory changes" in the country.
"Fitch believes that an evolving regulatory framework, frequent policy changes and 2G licence cancellations by the Supreme Court in February 2012 could change the industry structure in 2012 and negatively affect Bharti's free cash flow generation," Fitch said in a statement.
Fitch Ratings affirmed Bharti Airtel's Long-Term foreign currency issuer default rating at 'BBB-', which reflects moderate credit risk, with a 'negative' outlook.
The rating agency further said that "the negative outlook reflected Bharti's exposure to adverse regulatory changes in India that could result in higher-than-expected cash outflows compared with its base case expectations."
It added that the ratings for the company could be downgraded if higher-than-expected regulatory charges and/or any merger and acquisition activity results in Bharti's funds from operations-adjusted net leverage remaining above 2.5 times on a sustained basis.
However, the outlook could be revised to stable if regulatory decisions turn out to be in favour of Bharti, resulting in further deleveraging of its balance sheet, it said.
Key regulatory risks for Bharti include a one-time charge for excess spectrum, spectrum refarming and imposition of high spectrum renewal fees as recommended by regulator Telecom Regulatory Authority of India (Trai), Fitch said.
Moreover, Trai's latest recommendations on spectrum auction and an early execution of spectrum refarming has further increased the risk of regulatory-led cash outflows for Bharti, it added.
Fitch expects the Indian telecom industry to structurally improve in 2012, following the cancellation of 122 second generation (2G) licences by the Supreme Court which resulted in the exit of three smaller operators, it added.
Further, if Trai's recommendations get accepted by the Telecom Ministry in-principle, this could further weaken smaller operators' market position and could also force them to exit the industry, it said.
Shares of Bharti Airtel today closed at Rs 307.60 apiece on the BSE, down 0.49 per cent from the previous close.
First Published: Friday, April 27, 2012, 20:02