INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH, BHOPAL

PGDM TRIMESTER-III BATCH 4th (2012-2014) BUSINESS ENVIRONMENT ASSIGNMENT-I ON CORPORATE GOVERNANCE OF BHARTI AIRTEL

Submitted To: Dr. (Prof.) Priya Dwivedi

Submitted By: Pooja Tekwani Sachin Pathak Saijeeth Vasudevan

CORPORATE GOVERNANCE
Definition of corporate governance: "Corporate Governance is concerned with holding the balance betTheyen economic and social goals and betTheyen individual and communal goals. The corporate governance framework is there to encTheirage the efficient use of resTheirces and equally to require accountability for the stewardship of those resTheirces. The aim is to align as nearly as possible the interests of individuals, corporations and society." "Corporate governance is about promoting corporate fairness, transparency and accountability" J. Wolfensohn, president of the Word bank, as quoted by an article in Financial Times, June 21, 1999. Corporate governance comprises the systems and processes which ensure the efficient functioning of the firm in a transparent manner for the benefit of all the stakeholders and accountable to them. The focus is on relationship betTheyen owners and board in directing and controlling companies as legal entities in perpetuity. A companys ability to create Theyalth for its owners hoTheyver, depends on the role and freedom given to it by society. Sir Adrian Cadbury in his preface to the World Bank publication, Corporate Governance: A Framework for Implementation; states that, Corporate Governance isholding the balance betTheyen economic and social goals and betTheyen individual and community goals. The governance framework is there to encTheirage the efficient use of resTheirces and equally to require accountability for the stewardship of these resTheirces. The aim is to align as nearly as possible the interest of individuals, corporations and society. The incentive to corporations is to achieve their corporate aims and to attract investment. The incentive for state is to strengthen their economies and discTheirage fraud and mismanagement. The focus on corporate governance arises out of the large dependencies of companies on financial markets as the preeminent sTheirce of capital. The quality of corporate governance shapes the future and the growth of the capital market. Strong corporate governance is indispensable to resilient and vibrant capital market. In the context of globalization, capital is likely to flow to markets which are Theyll regulated and practice high standards of transparency, efficiency and integrity.

BENEFITS OF CORPORATE GOVERNANCE: Good governance leads to congruence of interests of boards, management including owner managers and shareholders. Good governance provides stability and growth to the company. Good governance system builds confidence among investors. Good governance reduces perceived risks, consequently reducing cost of capital. Theyll governed companies enthuse employees to acquire and develop company specific skills. Adoption of good corporate governance practices promotes stability and long term sustenance of stakeholders relationship. Potential stakeholders aspire to enter into relationships with enterprises whose governance credentials are exemplary.

CORPORATE GOVERNANCE and ECONOMIC PERFORMANCE Among the various attempts to evolve the best global standards the principles evolved by Organization for Economic Cooperation and Development (OECD) released in 1999 have been accepted as an international benchmark. OECD principles recognize that different legal systems, institutional frameworks and traditions across countries have led to the development of a range of different approaches to corporate governance. The OECD principles like other good corporate governance regimes protect the interest of not only the shareholders but all stakeholders like employees, creditors, suppliers, customers and environment. OECD Principles The OECD principles of corporate governance cover five major areas: The rights of shareholders. The equitable treatment of shareholders. The role of stakeholders. Disclosure and transparency. The responsibilities of the boards. Rights of Shareholders: Rights of shareholder mentioned in the OECD report cover the registration of the right to ownership with the company, conveyance or transfer of shares, obtain relevant information from the company on a timely and regular basis, participate and vote in general shareholders meetings, elect members of the board and share in the profits of the company.

Equitable treatment of shareholders: All shareholders should be treated equitably and the law should not make any distinction among different shareholders holding a given class or type of shares. Any changes in voting rights of common shareholders can be done only with the consent of those shareholders. Role of Stakeholders: The rights of stakeholders as established by law should be recognized and active cooperation betTheyen corporations and stakeholders in creating Theyalth, jobs and sustainability of financially sound enterprises should be encTheiraged. Corporate entities also have an impact on the environment of the community in which they are located. Polluting units may generate profits for shareholders but impose costs on society. Role of Board: The main task of a board is to monitor the performance of executives and to ensure that returns to shareholders are maximized. True independence of board can be ensured by having a majority of outside directors who do not have any financial or pecuniary involvement with the company. Disclosures and Transparency: Timely disclosures relating to financial position, ownership pattern and shareholding helps in infusing a sense of discipline and accountability of managers. Increased transparency and information help to reduce information a symmetry betTheyen management and shareholders. MODELS OF CORPORATE GOVERNANCE: OUTSIDER MODEL Outsider model obtaining in USA and UK in which control and ownership are distinct and separate. Since equity ownership is widely dispersed among a large number of institutional holders and small investors, control vests with professional managers. The model is also referred to as principal agent model where the shareholders, the principals entrust the management of the firm to the managers, the agents. In actual practice with the growth of the firm the gulf betTheyen shareholders and managers has widened and became distant giving rise to the agency problem, ensuring that the managers function in the interests of the shareholders. The dichotomy betTheyen ownership and control has necessitated the adoption of regulatory and legal frameworks to ensure that corporate governance practices protect the interests of shareholders as Theyll as other stakeholders. INSIDER MODEL The insider model has two variants, the European and East Asian. In the European model a relatively small compact group of shareholders exercise control over corporation. On the other hand, the East Asian model of corporate governance, the founding family generally holds the controlling shares either directly or through holding companies. In all East Asian countries control is enhanced through pyramid structures and cross holding firms. In the European insider

model the controlling shareholders are backed by complex shareholders agreements. The controlling group maintains longer term and stable relationship among themselves. In the European countries where this insider model is extant corporate sector on banks as a sTheirce of finance and the corporate entities have quite high levels of debt equity ratio.

CORPORATE GOVERNANCE IN INDIA:

Factors influencing Corporate Governance: SEBI Theybsite has summarized the factors which influence quality of governance in Indian companies. a. Integrity of the Management: A Board of Directors with a low level of integrity is tempted to misuse the trust, reposed by shareholders and other stakeholders, to take decisions that benefit a few at the cost of others. b. Ability of the Board: The collective ability, in terms of knowledge and skill, of the Board of Directors to effectively supervise the executive management determines the effectiveness of the board. c. Adequacy of the process: Board of directors cannot effectively supervise the effective management if the process fails to provide sufficient and timely information to the Board, necessary for reviewing the plans and the performance of the enterprise. d. Commitment level of individual board of members: The quality of a board depends on the commitment of individual members to tasks, which thy are expected to perform as board members. e. Quality of corporate reporting; the quality of corporate reporting depends on the transparency and timeliness of corporate communication shareholders. This helps the shareholders in making economic decisions and in correctly evaluating the management in its stewardship function. f. Participation of Stakeholders in the management: The level of participation of stakeholders determines the number of new ideas being generated in optimum utilization of resTheirces and for improving the administrative structure and the process. Therefore an enterprise should encTheirage and facilitate stakeholders participation. RBI ADVISORY GROUP The report of the Advisory Group Corporate Governance (March 2001) appointed by RBI defines corporate governance as the system by which business entities are monitored, managed and controlled. According to the advisory group a good structure of corporate governance is one that encTheirages symbiotic relationship among shareholders, executive directors and the board

of directors so that the company is managed efficiently and the rewards are equitably shared among shareholders and stakeholders. COMMITTEE ON CORPORATE MANGALAM BIRLA, 1999 GOVERNANCE BY CHAIRMAN, KUMAR

The Securities and Exchange Board of India (SEBI) appointed the Committee on Corporate Governance on May 7, 1999 under the Chairmanship of Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise the standards of Corporate Governance. The Committees detailed terms of the reference are as follows: a. to suggest suitable amendments to the listing agreement executed by the stock exchanges with the companies and any other measures to improve the standards of corporate governance in the listed companies, in areas such as continuous disclosure of material information, both financial and non-financial, manner and frequency of such disclosures, responsibilities of independent and outside directors; b. to draft a code of corporate best practices; and c. To suggest safeguards to be instituted within the companies to deal with insider information and insider trading. The Recommendations of the Committee This Report is the first formal and comprehensive attempt to evolve a Code of Corporate governance, in the context of prevailing conditions of governance in Indian companies, as Theyll as the state of capital markets. While making the recommendations the Committee has been mindful that any code of Corporate Governance must be dynamic, evolving and should change with changing context and times. It would therefore be necessary that this code also is revieTheyd from time to time, keeping pace with the changing expectations of the investors, shareholders, and other stakeholders and with increasing sophistication achieved in capital markets.

REASON FOR INCREASED ATTENTION CORPORATE GOVERNANCE:

In recent years, corporate governance has received increased attention because of recent global financial melt-down, mega corporate failures and frauds of high-profile scandals involving abuse of corporate poTheyr and in some cases, alleged criminal activity by corporate officers.

CRISIL RATINGS
Who They Are CRISIL Ratings is India's leading rating agency. They pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigTheir and innovation, They have a leadership position. They have rated over 60,000 entities, by far the largest number in India. They are a full-service rating agency. They rate the entire range of debt instruments: bank loans, certificates of deposit, commercial paper, non-convertible debentures, bank hybrid capital instruments, asset-backed securities, mortgage-backed securities, perpetual bonds, and partial guarantees. CRISIL sets the standards in every aspect of the credit rating business. They have instituted several innovations in India including rating municipal bonds, partially guaranteed instruments and microfinance institutions. They pioneered a globally unique and affordable rating service for Small and Medium Enterprises (SMEs).This has significantly expanded the market for ratings and is improving SMEs' access to affordable finance. Who They Serve CRISIL Ratings serves lenders, investors, issuers, market intermediaries and regulators by improving information availability and providing benchmarks. They rate most of India's largest companies and several of the smallest. They have rated 15,000 large and mid-corporates and financial institutions, and over 45,000 small and medium enterprises across 190 industry sectors. Their ratings cover manufacturing companies, banks, non-banking finance companies, public sector undertakings, financial institutions, state governments, urban local bodies, mutual funds. How They Add Value CRISIL's ratings assist issuers and borroTheyrs in enhancing their access to funding, widening the range of funding alternatives, and optimizing the cost of funds. Investors and lenders use Their ratings to supplement their internal evaluation process and to benchmark credit quality across investment options. For the markets at large, Their ratings act as a market benchmark for pricing and trading of debt instruments.

They help regulators in measurement and management of credit risks at a systemic level. CRISIL's ratings are used in the computation of capital adequacy in the banking sector. Their ratings are also used to determine the eligible investment pool for insurance companies, pension funds, and provident funds. A CRISIL GVC RATING indicates the relative capability of a firm with respect to creating Theyalth for all its stakeholders, while adopting sound corporate governance practices. A CRISIL GVC Rating measures the balanced creation of value amongst all stakeholders using a judicious mix of qualitative and quantitative parameters. CRISIL Rating Symbols For Governance And Value Creation Ratings: CRISIL GVC Level-1 The capability of firms rated CRISIL "GVC Level value creation for all stakeholders is the highest. CRISIL GVC Level-2 The capability of firms rated CRISIL "GVC Level value creation for all stakeholders is very high. CRISIL GVC Level-3 The capability of firms rated CRISIL "GVC Level value creation for all stakeholders is high. CRISIL GVC Level-4 The capability of firms rated CRISIL "GVC Level value creation for all stakeholders is above average. CRISIL GVC Level-5 The capability of firms rated CRISIL "GVC Level value creation for all stakeholders is average. CRISIL GVC Level-6 The capability of firms rated CRISIL "GVC Level value creation for all stakeholders is below average. CRISIL GVC Level-7 The capability of firms rated CRISIL "GVC Level value creation for all stakeholders is low. CRISIL GVC Level-8 The capability of firms rated CRISIL "GVC Level value creation for all stakeholders is the loTheyst.

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BHARTI AIRTEL
Bharti Airtel Limited, commonly known as Airtel, is an Indian multinational telecommunications services company headquartered at New Delhi, India. It operates in 20 countries across South Asia, Africa and the Channel Islands. Airtel has GSM network in all countries in which it operates, providing 2G, 3G and 4G services depending upon the country of operation. Airtel is the world's third largest mobile telecommunications company with over 261 million subscribers across 20 countries as of August 2012. It is the largest cellular service provider in India, with 183.61 million subscribers as of November 2012.Airtel is the third largest in-country mobile operator by subscriber base, behind China Mobile and China Unicom. Airtel is the largest provider of mobile telephony and second largest provider of fixed telephony in India, and is also a provider of broadband and subscription television services. It offers its telecom services under the airtel brand, and is headed by Sunil Bharti Mittal. Bharti Airtel is the first Indian telecom service provider to achieve Cisco Gold Certification. It also acts as a carrier for national and international long distance communication services. The company has a submarine cable landing station at Chennai, which connects the submarine cable connecting Chennai and Singapore. Airtel is credited with pioneering the business strategy of outsTheircing all of its business operations except marketing, sales and finance and building the 'minutes factory' model of low cost and high volumes. The strategy has since been copied by several operators. Its network base stations, microwave links, etc.is maintained by Ericsson and Nokia Siemens Networkwhereas business support is provided by IBM, and transmission toTheyrs are maintained by another company (Bharti Infratel Ltd. in India). Ericsson agreed for the first time to be paid by the minute for installation and maintenance of their equipment rather than being paid up front, which alloTheyd Airtel to provide low call rates of 1/minute (US$0.02/minute). During the last financial year (200910), Bharti negotiated for its strategic partner Alcatel-Lucent to manage the network infrastructure for the tele-media business. On 31 May 2012, Bharti Airtel awarded the three-year contract to Alcatel-Lucent for setting up an Internet Protocol access network (mobile backhaul) across the country. This would help consumers access internet at faster speed and high quality internet browsing on mobile handsets.

CAPITAL MARKET RATINGS:

As at March 31, 2012, Bharti Airtel Limited is rated by two domestic rating agencies, viz. CRISIL and ICRA, and two international rating agencies, viz. Fitch Ratings and S&P. CRISIL and ICRA have rated the Company at the top end of their rating scales, both for short term (P1+/A1+) as Theyll as long term (AAA/LAAA) with Negative outlook.

 Fitch Ratings maintained its rating at BBB - but moved the outlook to negative. S&P has reaffirmed its rating at BB+ with Stable outlook.

REPORT ON CORPORATE GOVERNANCE IN BHARTI AIRTEL:

CORPORATE GOVERNANCE The Company is committed to maintain the highest standards of Corporate Governance. The Directors adhere to the requirements set out by the Securities and Exchange Board of Indias Corporate Governance Practices and have implemented all the stipulations prescribed. A detailed report on Corporate Governance pursuant to the requirements of clause 49 of the listing agreement forms part of the annual report. HoTheyver, in terms of the provisions of section 219(1)(b)(iv) of the Act, the abridged annual report has been sent to the members of the Company excluding this report. A certificate from the auditors of the Company, M/s. S.R. atliboi & Associates, Chartered Accountants, Gurgaon confirming compliance of conditions of corporate governance as stipulated under clause 49 is annexed to the report as Annexure A. SECRETARIAL AUDIT REPORT Keeping with the high standards of corporate governance adopted by the Company and also to ensure proper compliance with the provisions of various corporate laws, the regulations and guidelines issued by the Securities and Exchange Board of India, the listing agreement, the Company has voluntarily started a practice of the secretarial audit from a practicing company secretary. The Company has appointed M/s. Chandrasekaran Associates, Company Secretaries, New Delhi, to conduct secretarial audit of the Company for the financial year ended March 31, 2012, who has submitted their report confirming the compliance with all the applicable provisions of various corporate laws. The Secretarial Audit Report is provided separately in the annual report. HoTheyver, in terms of the provisions of section 219(1) (b)(iv) of the Act, the abridged annual report has been sent to the members of the Company excluding this report.

Annexure A
AUDITORS CERTIFICATE REGARDING CORPORATE GOVERNANCE To The Members of Bharti Airtel Limited They have examined the compliance of conditions of corporate governance by Bharti Airtel Limited (the Company), for the year ended March 31, 2012, as stipulated in clause 49 of the listing agreement of the said Company with stock exchanges in India. COMPLIANCE OF CONDITIONS OF

The compliance of conditions of corporate governance is the responsibility of the management. Their examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In Their opinion and to the best of Their information and according to the explanations given to us, They certify that the Company has complied with the conditions of corporate governance as stipulated in the above mentioned listing agreement. They state that such compliance is neither an assurance as to the future viability of the Company nor the effectiveness with which the management has conducted the affairs of the Company. For S.R. BATLIBOI & ASSOCIATES Firm Registration No: 101049W Chartered Accountants per Prashant Singhal Partner Membership No.: 93283 Bharti Airtel believes that risk management and internal control are fundamental to effective corporate governance and the development of a sustainable business. Bharti Airtel has a robust process to identify key risks across the group and prioritize relevant action plans that can mitigate these risks. The Audit Committee reviews the effectiveness of the internal control system in the Company and also invites the senior management/functional directors to provide an update on their functions from time to time. A CEO and CFO Certificate forming part of the Corporate Governance Report confirm the existence of effective internal control systems and procedures in the Company.

GOVERNANCE PHILOSOPHY
Corporate Governance may be defined as a set of systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders. It is the system by which companies are directed and controlled. It is about promoting corporate fairness, transparency and accountability. In other words, good corporate governance is simply good business. The aim of Good Corporate Governance is to ensure commitment of the board in managing the company in a transparent manner for maximizing long-term value of the company for its

shareholders and all other partners. It integrates all the participants involved in a process, which is economic, and at the same time social. A Theyll-defined and enforced corporate governance provides a structure that works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards and best practices as Theyll as to formal laws. An integral part of an effective corporate governance regime includes provisions for civil or criminal prosecution of individuals who conduct unethical or illegal acts in the name of the enterprise. Corporate Governance goes beyond the practices enshrined in the laws and is imbibed in the basic business ethics and values that needs to be adhered to in letter and spirit. HoTheyver a transparent, ethical and responsible corporate governance framework essentially emanates from the intrinsic will and passion for good governance ingrained in the organization. Good corporate governance practices are also essential for a sustainable business model for generating long term value for all its stakeholders. Beside the mandatory clause 49 of the stock exchange listing agreement, the Ministry of Corporate Affairs has also published detailed voluntary governance guidelines that inter alia contain provisions relating to the role and responsibilities of theboard, disclosure of information to shareholders and auditors tenure. At Bharti Airtel, corporate governance practices are based on the following broad principles with the objective of adhering to the highest standard of governance through continuous evaluation & benchmarking. Theyll-experienced and diverse board of directors, with expertise across global finance, telecommunication, banking, administrative services and consulting; Adoption of transparent procedures and practices and arriving at decisions on the strength of adequate information; Ensuring compliance with regulatory and fiduciary requirements in letter and spirit; High levels of disclosures for dissemination of corporate, financial and operational information to all its stakeholders; Adoption of policy on tenure of directors, rotation of auditors and a code of conduct for directors and senior management; Creation of various committees for audit, senior management compensation, HR policy and management compensation, employee stock option plans and investor grievance;

 Ensuring complete and timely disclosure of relevant financial and operational information to enable the Board to play an effective role in guiding strategy; Informal meeting of independent directors without the presence of any nonindependent/executive directors to identify areas where they need more clarity or information and then put them before the board or management; A formal induction schedule for new board members that enables them to meet individually with the top management team; Reviewing regularly and establishing effective meeting practices that encTheirage active participation and contribution from all members; Independence of directors in reviewing and approving corporate strategy, major business plans and activities as Theyll as senior management appointments; Theyll defined corporate structure that establishes checks and balances and delegates decision making to appropriate levels in the organization, though the board remains in effective control of the affairs of the Company at all times.

CORPORATE GOVERNANCE RATING

CRISIL has re-affirmed its Governance and Value Creation (GVC) rating viz. CRISIL GVC Level 1 on the Corporate Governance Practices adopted by the Company. The rating indicates that Bharti Airtels capability with respect to corporate governance and value creation for all its stakeholders is the highest. They acknowledge that standards are a constantly upwardly moving target and They aim to establish and benchmark Theirselves with the best of companies in India and overseas to ensure that They continue to maintain the highest rating for Their practices.

CRISIL GVC Level-1

The capability of firms rated CRISIL "GVC Level 1" with regard to corporate governance and value creation for all stakeholders is the highest.

GOVERNANCE STRUCTURE
Building a culture of integrity in todays complex business environment demands high standards across operations. Bharti Airtels commitment to total compliance is backed by an independent and fully informed board and comprehensive processes and policies that enables transparency in Their functioning. The organization structure is headed by the Group Chairman & Managing Director, supported by the CEO (International) & Joint Managing Director and CEO (India & South Asia). The CEO (International) & JMD is responsible for the international operations of the Company; CEO (India & South Asia) has a direct responsibility for operations in India and

South Asia region. There is a clear demarcation of duties and responsibilities amongst the three positions. The Group Chairman and Managing Director is responsible for providing strategic direction, leadership and governance, leading transformational initiatives, international strategic alliances besides effective management of the Company with a focus on enhancing Bhartis global image; The CEO (International) & Joint Managing Director based in Nairobi, Kenya is responsible for overall business performance, management and expansion of the international operations. He is also responsible for driving people agenda, customer satisfaction, outsTheircing initiatives and the internal control metrics for the international operations; The CEO (India & South Asia) heads the India and South Asia operations and is responsible for overall business performance in this region. He is also responsible for driving people agenda, customer satisfaction, ensuring success of outsTheircing initiatives and improvements in the internal control metrics for India and South Asia operations.

The corporate governance structure of Their Company is multi-tiered, comprising governing/functional business management boards at various levels, each of which is interlinked in the following manner: a) Strategic Supervision and Direction by the Board of Directors, who exercises independent judgment in overseeing management performance on behalf of the shareowners and other stakeholders and hence plays a vital role in theoversight and management of the Company; b) Control and implementation by the Airtel Management Board (AMB) in India and South Asia and Airtel International Management Board (AIMB) in Africa. c) Operations management by the Management Boards of the various business units assisted by their respective Hub or Circle Executive Committees (ECs) for day-to-day management and decision making, focused on enhancing the efficiency and effectiveness of the respective businesses; and d) Various Councils viz. Shared Services Governance Council, Executive Finance Council, Brand Council, Customer Experience Council and Risk Committee. Shared Service Governance Council governs the effectiveness of the shared services support to all the business units of the Company, thus ensuring realization of synergies across various shared services. Executive Finance Council reviews the financial performance of the Company on a monthly basis and approves the financial plans and forecasts. Brand Council drives the Brand Airtel Strategy of the Company and reviews the brand health scores on a periodic basis. Customer Experience Council reviews end to end customer service delivery ensuring superior and uniform customer experience across lines of business. Risk Committee monitors the

effectiveness of the risk management process and reviews & approves the risk mitigation strategies of the Company. Their governance structure helps in clearly determining the responsibilities and entrusted poTheyrs of each of the business entities, thus enabling them to perform those responsibilities in the most effective manner. It also allows us to maintain Their focus on the organizational DNA and current and future business strategy, besides enabling effective delegation of authority and empoTheyrment at all levels. Other key informations are also mention in the corporate governance of Bharti Airtel. They are following the guidelines for the corporate governance. The other key informations are: 1) BOARD OF DIRECTORS 1) About Composition of the Board 2) About Independent Directors 3) About Role and Responsibility of Independent Directors 4) About Lead Independent Director 5) About Meeting of Independent Directors 6) About Board Meeting Schedules and Agenda 7) About the Information Available to the Board 8) Number of Board Meetings 9) Remuneration Policy for Directors 10) Remuneration to Directors 11) Code of Conduct 2) BOARD COMMITTEES 1) Audit Committee 2) Key Responsibilities of Audit Committee 3) PoTheyrs of the Audit Committee 4) Meetings, Attendance and Composition 5) Audit Committee Report for the year 6) HR Committee 7) Key Responsibilities HR committee 8) Meetings, Attendance and Composition 9) ESOP Compensation Committee 10) Key Responsibilities ESOP Compensation Committee 11) Investors Grievance Committee 12) Key Responsibilities Investors Grievance Committee 13) SUBSIDIARY COMPANIES 14) DISCLOSURES

3) ABOUT MOA 4) ABOUT AOA

THE COMPOSITION OF THE BOARD IS AS UNDER:

FINANCIAL IMPLICATION OF CORPORATE GOVERNANCE ON BHARTI AIRTEL:

CRISIL RATING LATEST RATING (YEAR 2013)
Bharti Airtel Limited Wireless Letter of Credit and Bank Telecommunication Guarantees Services Non-Convertible Debenture Cash Credit Limit Commercial Paper Letter of Credit and Bank Guarantee Buyers Credit Limit Governance and Value Creation Rating CRISIL AA+ Stable

CRISIL AA+ CRISIL AA+ CRISIL A1+ CRISIL A1+ CRISIL A1+ CRISIL GVC Level 1

Stable Stable

THE DOWNGRADE IN THE RATING HAS AFFECTED THE SHARE PRICE OF BHARTI AIRTEL. FTER THE DOWNGRADE SHARE PRICE HAS DECREASED:

CLOSING SHARE PRICE (Rs.) BHARTI AIRTEL

380 370 360 350 340 330 320 310 300 329.4 324.75 348.85 355.55 361.9 351.65 357.35 344.6 367.35 360.5 349.5 339.6 331.05 CLOSING SHARE PRICE

January 24, 2013 Mumbai Bharti Airtel Limited Rating downgraded to 'CRISIL AA+/Stable' Total Bank Loan Facilities Rated Long-Term Rating Short-Term Rating Rs.24.38 Billion CRISIL AA+/Stable AAA/Negative) CRISIL A1+ (Reaffirmed) (Downgraded from CRISIL

(Refer to Annexure 1 for details on facilities) Non-Convertible CRISIL AA+/Stable (Downgraded from CRISIL AAA/Negative) CRISIL A1+ (Reaffirmed)

Rs.2.725 Debentures

Billion

Rs.1.0 Billion Commercial Paper

CRISIL has downgraded its ratings on Bharti Airtel Ltds (Bharti Airtels) long-term debt programmes and bank facilities to CRISIL AA+/Stable from CRISIL AAA/Negative. The rating on the companys short-term debt and bank facilities has been reaffirmed at CRISIL A1+. The rating downgrade reflects CRISILs belief that Bharti Airtels gearing will not improve significantly as on March 31, 2013, despite an equity infusion through an initial public offer (IPO) in its subsidiary, Bharti Infratel Ltd (Bharti Infratel). Furthermore, potential cash outflows towards onetime spectrum fees and licence renewal fees are likely to result in its capital structure taking longer to improve than CRISILs previous expectations. Notwithstanding this, Bharti Airtels operating performance in India is expected to improve on the back of its strong market position, healthy operating efficiencies, and expectation of reduced competition. In Africa, Bharti Airtel is expected to gradually improve its operating efficiency driven by steady improvement in the utilisation of network. Bharti Airtels adjusted gearing remained high at around 1.4 times as on September 30, 2012, primarily due to continuing high value of the Indian rupee against US dollar. Bharti Airtel will remain exposed to foreign currency risks, as the majority of its debt is in US dollars, while a substantial portion of its cash inflows are in Indian rupees. Adverse foreign exchange rates have significantly sloTheyd down the pace of improvement in Bharti Airtels gearing over the past year. HoTheyver, most of Bharti Airtel's

debt matures after April 1, 2014. Such a maturity profile, along with strong financial flexibility arising out of its access to capital markets and bank lines, offsets the refinancing risk for Bharti Airtel. Bharti Airtel is expected to preserve cash for likely payment of one-time fees and licence renewal fees in 2013-14 (refers to financial year, April 1 to March 31) and 2014-15, respectively. The companys debt levels remained higher than CRISIL expectations at Rs.705 billion as on September 30, 2012, as against Rs.690 billion as on March 31, 2012. The increase in debt is partially due to proportionate consolidation of debt in Qualcomm Asia Pacific India entities (QAPI; Bharti Airtel acquired 49 per cent stake in QAPI in May 2012). CRISIL expects Bharti Airtels gearing to remain high at an estimated 1.2 times as on March 31, 2013. CRISIL, in its previous rating rationale, had stated that unless Bharti Airtel attracts significant equity infusion in 2012-13, the continued high gearing will bring the companys financial risk profile under pressure. Bharti Airtels Indian operations, despite intense competition, witnessed a moderate growth of 7.6 per cent in its subscriber base to 185.9 million as on September 30, 2012, from 173 million as on September 30, 2011. The company reported a strong operating margin of around 32.2 per cent in the first half of 2012-13. Its average realised revenue per minute has remained stable at about Re.0.44. Also, given Bharti Airtels large coverage of 86.6 per cent of Indias population, its future capital commitments are not expected to be significant, resulting in robust cash flows from this market. Going forward, the competitive intensity in India is expected to moderate resulting in improvement in pricing poTheyr. HoTheyver, the company remains susceptible to changes in regulations in India, especially those pertaining to spectrum pricing and allocation, one-time fees for excess spectrum, and fees for licence renewal, and to technology risks, which could lead to significant cash outflows over the next one to three years. In order to suitably position itself for the next level of technological advancements, Bharti Airtel recently bought 49 per cent equity stake in QAPI for about USD165 million. QAPI has broadband wireless access licences in the lucrative circles of Delhi, Mumbai, Haryana, and Kerala. Bharti Airtel will have complete ownership in QAPI by December 2014, subject to certain terms and conditions. Bharti Airtels subsidiary in Africa, Bharti Africa, has improved its market position and operating efficiencies. Since the time of acquisition, Bharti Africa has been able to gain revenue share in several African markets. Currently, it is the market leader in most of the African countries. The gradual improvement in market share for Bharti Africa has been driven by its low-cost business model, with focus on higher utilisation of network. The African business witnessed healthy addition of 5.5 million subscribers in the first half of 2012-13. Over the medium term, this trend of subscriber addition is expected to continue and will lead to further improvement in Bharti Africas overall cost structure and translate into an improved operating performance for the entity. Bharti Africa improved its operating margin to 27.2 per cent in the second quarter of 2012-13 from 25.8 per cent in the first quarter. CRISIL

expects the trend of improvement in Bharti Africas operating margin to continue over the medium term. Bharti Airtels financial risk profile continues to be supported by its robust operating cash flows. It generated operating cash flows (available for capex and debt repayments) of about Rs.170 billion in 2011-12; this is expected to increase to about Rs.200 billion per year over the medium term, driven by the companys continuing leadership position in the Indian market and improving operating performance in the Africa market. With expected capex of over Rs.160 billion per annum, Bharti Airtel is likely to generate free operating cash flows of about Rs.40 billion per annum over the medium term. For arriving at its ratings, CRISIL continues to combine the business and financial risk profiles of Bharti Airtels India, South Asia, and Africa operations, along with that of Bharti Infratel, as these entities are under a common management and have strong business and financial linkages with each other. CRISIL has not combined the business and financial risk profiles of QAPI and has treated it as an investment-QAPIs business and financial risk profiles will be combined once Bharti Airtel has full ownership in the entity by 2014-15. Outlook: Stable CRISIL believes that Bharti Airtel will continue to maintain its leading position in the Indian telecommunications market over the medium term. Its position in key markets of Africa is also expected to improve on the back of steady increase in uptake of minutes translating into a better operating performance. The outlook may be revised to Positive if the company achieves better -thananticipated improvement in its gearing, driven by healthy cash flows or larger-than-expected equity infusion. Conversely, the outlook may be revised to Negative if Bharti Airtels profitability is not in line with CRISILs expectations, or if regulatory changes in the Indian market significantly impact the companys cash flows, resulting in sloTheyr-than-expected deleveraging. The outlook could also be revised to Negative if the companys debt levels remain high over the medium term. About the Company Bharti Airtel is one of Indias leading integrated telecommunications service operators, providing mobile, broadband, and fixed-line telephone services, and enterprise services. The company provides mobile telephone services in all of Indias 22 telecommunication circles. It had a wireless subscriber base of 185.9 million as on September 30, 2012 (about 20 per cent of the total Indian wireless market). It derives about 76 per cent of its revenues from mobile telephone services. Bharti Airtel acquired Zain Africa BVs business for USD10.7 billion in March 2010, and it currently operates in 17 countries in Africa. Apart from India and Africa, Bharti Airtel also operates in Sri Lanka and Bangladesh. Bharti Airtel, on a consolidated basis, reported a net profit of Rs.14.8 billion on net sales of Rs.396.2

billion for the first half of 2012-13, against a net profit of Rs.22.4 billion on net sales of Rs.342.4 billion for the corresponding period of previous year. Annexure 1 - Details of various bank facilities Current facilities Amount (Rs. Million) Previous facilities Amount Rating (Rs.Million) Credit

Facility

Rating

Facility

Buyers Credit Limit 1350

CRISIL A1+ CRISIL AA+/Stable

Buyers Limit Cash Credit

1350

CRISIL A1+ CRISIL AAA/Negative

Cash Credit

3850

3850

Letter of Credit and 5000 Bank Guarantee

Letter of Credit CRISIL A1+ and Bank 5000 Guarantee CRISIL AA+/Stable -Letter of Credit and Bank 14180 Guarantee Total 24380

CRISIL A1+

Letter of Credit and 14180 Bank Guarantee Total 24380

CRISIL AAA/Negative --

CONCLUSION
Corporate Governance is necessary for proper running of a company. The main parties evolved in the corporate governance are: Investors Board of Directors Government of India

Corporate Governance is the application of best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders