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Liability goes up by Rs 1,000 cr for every Rs 1 change in $ exchange rate
Indian companies that went on a massive acquisition drive abroad in recent years are now realising they will have to now pay more for it — thanks to the 15 per cent depreciation in the rupee’s value in the past two months. The gross debt of Bharti Airtel, which took over Zain’s African operations in 2010, is expected to shoot up by a massive Rs 5,900 crore due to the currency’s fall. 
According to analysts, assuming the dollar-denominated liabilities of $10 billion, Bharti’s liability increases by Rs 1,000 crore (Rs 10 billion) for every one rupee change in the dollar exchange rate.
A potential 10 per cent rupee depreciation, that is from Rs 59.4 to Rs 65.3 versus a dollar, would result in dollar-denominated liabilities increasing by Rs 5,900 crore (Rs 59 billion) for the company. Bharti had paid a massive $10.7 billion in 2010. The rupee is on a downward journey since then. This liability is not including the interest rate fluctuations.
One of the options Bharti is currently working on is to hive off the telecom tower assets in Africa and sell part stake in the tower company to new investors. The tower company will be formed across all African countries by the end of the current financial year. In order to expedite the restructuring, the group has also given more powers to its country heads instead of keeping a topdown approach from its African headquarters in Nigeria.
Analysts say Indian corporates are currently more vulnerable to currency shocks than any time in the recent history, given the current bout of sharp rupee depreciation and historic volatility.
A Bharti spokesperson says its global debt of approximate $10 billion is in various currencies and across 20 countries. “The dollar-rupee movement impacts only the dollar-dominated debt taken in India, which is approximate $500 million. Our international assets are dollar-dominated with functional currency as per accounting standards being the dollar.
Accordingly, for any dollar-dominated loans for these there is no currency fluctuation impact due to appreciation of dollar versus rupee or vice versa. As far as debt in Indian currency is concerned, currently on a consolidated basis in India, we have net cash as against net debt.”
Bharti Airtel is the loan guarantor for these overseas loans taken by the special purpose vehicles registered abroad. A Motilal Oswal analysis says Bharti’s Africa business, which reported seven per cent dollar revenue growth in FY13, continued to witness significant divergence in country-wise performance. Countries which outperformed African growth with a 20 per cent plus growth include Ghana, Uganda, Sierra Leone and Kenya.
Gabon, Zambia and Malawi have posted a decline in revenue. Of this, Malawi posted a revenue decline of 56 per cent in dollar terms due to 80 per cent depreciation of its currency. The report says the top five African countries account for 65 per cent of overall revenues of Bharti Africa where the companies have posted flat revenue in dollar terms.
While Nigeria remains the biggest market with a revenue contribution of 35 per cent followed by Democratic Republic of Congo (9 per cent), Zambia (7 per cent), Gabon (7 per cent) and Tanzania (6 per cent).
Investors of Bharti Airtel are not enthused with its African operations. The company’s shares closed 1.4 per cent down at Rs 308.6 a share. The shares are down 2.6 per cent since January 1 this year.
