Banks not enthused about lending opportunity from upcoming telecom, coal auctions

Government speaks to banks as challenges facing the industries keep lenders cautious

Lenders are not enthused about the coming telecom spectrum and coal block auctions, expected to rake in Rs 1,40,000 crore for the government, as they do not see any immediate boost to their asset base.

While this could together provide a lending opportunity of about Rs 1,00,000 crore in the coming years, stretched balance sheets of power sector companies and abundance of spectrum in future diluting the value of collateral are seen as  major concerns.

The government has put spectrum in the 800-MHz, 900-MHz and  1,800-MHz bands for auction from February 25. It has not yet finalised the date of auction of 5 MHz spectrum in the 2,100-MHz band that is used for third-generation telecom services.

The Cabinet has also cleared a swap of airwaves between the telecom department and the defence ministry, for freeing an additional 15 MHz for commercial use.

“Our bank is not much enthused with lending to those participating in the spectrum auction the given the high prospect of surplus spectrum after five years, which would make the value of loan security weak,” says an executive at IDBI Bank, who did not wish to be identified.  The government also plans to announce reworked merger and acquisition (M&A) guidelines along with spectrum sharing and trading rules. This will spur consolidation in the sector .

“Since the government is providing a meagre resource in telecom spectrum, the debt position of the companies is going to be risky, so banks will naturally be careful,” says Rajan Mathews, director-general at Cellular Operators Association of India.

According to his estimates, the government is expected to earn about Rs 70,000 crore from telecom spectrum out of this about Rs 17,500 crore,  25 per cent is going to come in an upfront payment, while the rest will come in a staggered manner.

He, however, estimates that there would be about Rs  50,000 crore of funding requirement for this over the years.

“Big telecom players (Idea, Vodafone and Bharti) have resources for bidding. So, the demand for credit from these players is not expected to be high,” says P Pradeep Kumar, managing director, corporate banking at State Bank of India.

The government is also starting the e-auction of 46 coal mines from February 14 for power, steel and cement sector companies.

Sushil Maroo, chief executive officer at Essar Energy, estimated that about Rs 15,000 crore of upfront payment requirements for the companies, which will bag these coal blocks. Bankers have been wary, as many of the power firms are reeling under fuel crunch and have defaulted on their loans.

Out of the 136 Gw stranded power generation capacity with an investment of Rs 6.23 lakh-crore, about Rs 4.36 lakh-crore is feared to turn into non-performing assets.  Coal-based projects of 46,500 Mw suffer with time and cost-overruns, hurting a committed investment of about Rs 3 lakh-crore.

To take lenders into confidence, before re-allocation of mines the coal ministry held a meeting with key banks and financial institutions on Thursday. “Companies will need fund to develop mines, which will ultimately make the projects viable. So, banks should be forthcoming,” says Maroo.

Both IDBI Bank and SBI executives said they were assessing the requirements.