S-E Crisis May Hit Domestic Cell Operators Paying The Bill

The worsening South-east Asian currency crisis could result in delays in domestic cellular projects achieving financial closure. This could lead to promoters defaulting in their licence fee payments.

Eight of the 22 cellular companies in India holding licences in 34 circles and accounting for almost half the Rs 20,000-crore licence fee commitments have promoters from Thailand and Hong Kong.

Although the Hong Kong dollar has not been affected by the currency turmoil sweeping the region, sources said, promoters based in the island have cross-holdings in conglomerates in other South Asian countries which have been hit badly.

The companies with promoters from the region are: JT Mobiles in which Jasmine Telecom of Thailand and Telecom Authority of Thailand hold a 23 per cent stake; Fascel (Thai Shinawatra with 33 per cent); Escotel (First Pacific of Hong Kong holds 49 per cent); Hong Kong-based Distacom owns 49 per cent equity in Modicom and around 24 per cent in Modi Telstra (through a holding company); Koshika (Philippines Telecom holds 10 per cent); Usha Martin Telekom (Malaysia Telekom holds 49 per cent); and Hutchison Max Cellular in which Distacom (and, reportedly, Li Ka Shing of Hutchison Telecom) have a stake.

Of these eight companies, which operate 16 cellular networks, only Escotel has achieved financial closure. Modicom has tied up debt funding, while Usha Martin Telekom and Hutchison Max have part-sourced necessary finances. Others like JT Mobiles and Fascel are in the final stages of discussion with financial institutions and banks for project funding.

The currency crisis may not immediately impact project funding, but will certainly affect future equity commitments.

These commitments are in dollars and to that extent become more expensive. The return on investment also correspondingly drops, a cellular industry source said.

Without equity commitments from the promoters, FIs and banks may not be willing to lend, the source added. Lenders to the Indian telecom companies have been wary of the high licence fees quoted by companies and have insisted on a debt-equity ratio of around 1:1.

Further, FIs and banks have insisted on several stringent covenants like a high debt service coverage ratio and a healthy licence fee cover.

The debt service coverage ratio is the ratio between cash flows and debt repayments while the licence fee cover is the discounted cash flows of the project divided by the licence fees. The licence fee cover of most Indian projects has been less than three, making FIs and banks wary.