Banks wary of lending for 2G licence auctions

Banks are wary of lending to telecom companies for bidding in the 2G licence auctions, which the Supreme Court has ordered the government to complete by January 18, 2013.

“These (telecom) companies would have to try hard this time to bring in the funds and, quite clearly, they will have to bring in more equity contribution than what has been the case in the past,” said the executive director of a public sector bank (PSB).

In February, SC had cancelled 122 licences allotted in 2008 during A Raja’s tenure as the communications minister, while deciding a public interest suit filed by senior advocate Prashant Bhushan. It ordered the government to re-auction the spectrum. The deadline has since been extended twice. The Comptroller and Auditor General report on these licences had said by not having done the earlier 2G allocations in a fair and transparent manner, the telecom ministry could have caused a loss of Rs 1.76 lakh crore to the exchequer.

HARD TO COME BY Many of the earlier bidders in high debt; lenders now likely to demand more equity upfront by firms wanting to enter fray
Company	Total debt (Rs crore)
Bharti Airtel	68,298
Reliance Comm	36,000
Idea	11,490
Source: Company website and press release. Debt as on  June 30, 2012

Another PSB executive said, “The big players won’t have much of problems but still all the proposals, as and when those come, would be dealt on a case-to-case basis. Banks have learnt lessons from the past and will take more risk-mitigating measures, including more equity from the promoters side.”

Established companies in the sector have banks which would lend to them. But, new licensees such as Uninor and Sistema Shyam have been denied loans without corporate guarantees. Last month, Telenor, the parent company, settled Uninor’s loans worth Rs 9,809 crore, after the banks which lent these had claimed the guarantees.

“I am not surprised that banks are becoming a lot more cautious on lending to the sector. A lot of players who invested in the market in 2008 are in huge debt,” said the top executive of a telecom company. He also said the 16-company environment which came into being after new licences were given away in 2008 might change and could go down to even an eight-company environment, as all companies were not expected to bid for the spectrum.

“We are of the view that the operators may not bid for all circles, while they may go for bidding of high revenue potential circles, as debt servicing obligations are limited,” said a report by Karvy Stock Broking.

The entire sector has around Rs 3 lakh crore in debt. Among those with high debt are Reliance Communications, with Rs 36,000 crore of loans and Bharti Airtel, the largest operator, with Rs 68,000 crore.