Debt no immediate worry

Total debt of the industry at present stands around Rs 2.5 lakh crore

Four telecom operators — Bharti Airtel, Vodafone India, Reliance Jio Infocomm and Idea Cellular — together will pay 89 per cent of the Rs 61,162 crore the government earned from the spectrum auction that ended on Thursday.

It might seem the industry will be burdened with debt, considering its total of loans is around Rs 2.5 lakh crore. However, the real situation is not dire. First, none of the companies will have to pay upfront; they will have to pay the amount over 10 years. While they will have to pay a little less than 30 per cent this year, there’s a two-year moratorium afterwards. So, average annual expense towards spectrum cost would be between Rs 1,600 crore and Rs 2,500 crore for the top four. This is much less than what these had given as bank guarantee while applying to bid for the auction. So, they won’t require new debt.

Bharti Airtel and Vodafone India were ready for this outgo, as their licences in the 900-MHz band were coming for renewal. Mukesh Ambani-led Reliance Jio Infocomm’s financial requirements are backed by Reliance Industries, sitting on huge cash reserves of Rs 1.75 lakh crore (as on March 31, 2013). Vodafone is now fully owned by UK telecom giant Vodafone, also sitting on huge cash. Telewings, backed by Norway’s Telenor, is also unlikely to feel the pinch.

Bharti Airtel, with total debt of Rs 57,643 crore at the end of December 2013, will have to pay Rs 5,425 crore this year. Its licence renewal was scheduled, and the company has also raised about $2 billion by issuing different bonds for debt repayment. Part of this can also be used in paying the spectrum fee. On the other hand, the company’s operating cash flow is a little more than Rs 4,000 crore on a quarterly basis. This might help the company secure debt, if required.

The government has also given the option to raise loans abroad for spectrum fee. As spectrum is the government’s property, it can be used as collateral for loans.

 

Idea Cellular, which is Aditya Birla Group company, may not face any trouble to finance spectrum fees this time, but as many of its licences in the 900MHz band are coming up for renewal in the next two years, the company may have to struggle with financing in the coming years, according to analysts.

 

Not just this. Operators will again need to invest in infrastructure as most of the companies are planning to roll out 4G services using 1800MHz band. This would increase their investments by a few thousands of crores for the industry together both in terms of network establishment and information technology expenses.

 

However, most of the existing debt being external and dollar-denominated, servicing the existing debt burden remains a concern for the telcos.