Telcos raise Rs 8,000 cr through commercial papers for 3G payout

Telecom companies (telcos) are looking at alternative sources of funds to pay for 3G spectrum. They had already raised Rs 7,500-8,000 crore by issuing commercial papers (CPs) over the past few days and more issuances were in the pipeline, investment bankers said.

The total amount raised by these companies through the commercial paper route could be over Rs 10,000 crore, which is 15-20 per cent of the Rs 50-55,000 crore that these firms are expected to raise through debt to pay for the spectrum, according to a senior executive from Axis Bank.

While term loans from banks will account for a bulk of the debt, almost all the big telecom players have issued CPs in the past few days. Reliance Communications and Aircel have raised about Rs 3,000 crore each through this route, while others such as Vodafone, Tata Teleservices and Idea have also tapped this route.

A commercial paper is a short-term note issued with a maturity period of one year or less. Mutual funds are the biggest group of investors in these securities which are usually not listed on exchanges, but are traded over-the-counter.

Unlike certificates of deposit (CDs), foreign institutional investors are also allowed to invest in CPs. Telecom companies have committed to pay Rs 67,719 crore in the 3G spectrum auctions which concluded last week. Telcos will rely on a combination of debt and internal accruals to pay for the spectrum.

“The advantage of CPs is that a relatively large quantum can be raised in a short period. They also tend to be cheaper than bridge loans of the same tenor,” said a senior executive of a foreign bank.

Short-term loans will account for a bulk of the debt to be raised by telecom companies.

Lenders such as State Bank of India and IDBI Bank have already committed over Rs 40,000 crore to telecom companies to meet their funding requirements towards 3G spectrum fee, due to be paid over the next two weeks. While the bids have gone beyond what was expected when the auction process started 34 days ago, bankers said the companies would be able to access funds through other windows available to them.

Subsequently, these loans would be substituted by external loans or long-term loans.

According to preliminary indications, banks have offered to extend short-term loans at over 10.5 per cent a year.

The rates would, however, vary for companies and be linked to their credit rating and risk appetite of banks, lenders said. Therefore, banks that already have high debt exposure to a company may have little headroom to provide further funding.