Telecom firms to raise funds at over 10.5%

Start talks to borrow for up to 1 year for payment of 3G fee.

Within hours of finalisation of the 3G spectrum bids, telecom companies are in talks with banks to access funds for up to a year.

According to preliminary indications, banks have offered to extend short-term loans – which will be substituted by long-term loans, domestic and foreign – at over 10.5 per cent a year. Even at these rates, the loans would be below the prevailing prime lending rate for all Indian banks.

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

Based on the rating, Bharti Airtel, for instance, will be able to access funds at a lower rate than, say, STel, a new player in the telecom arena.

Lenders led by 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 will be able to access funds through other windows available to them.

Subsequently, these loans would be substituted by lower-cost external loans.

Apart from raising funds to pay spectrum charges, the telecom companies will also need money to roll out the required infrastructure. Bankers said a large part of the funding for this will be made available by vendors and external funding agencies.

Most of the funding would be for the short term. But, this money would not come cheap, despite the prevailing low interest rates in the market, marked by abundant liquidity.

For the moment banks are focusing on the spectrum charges. “They have already tied up funding. Given the big-ticket loans, it would be in nature of multiple banking or consortium funding,” a Punjab National Bank executive said.

A senior IDBI Bank official said: “The duration of loans to telecom operators to pay fees may be of short duration but pricing will definitely happen at commercial rates (linked with prime lending rate). It means credit will not come at the low rates prevailing in the money market, where liquidity is abundant.”

Though the demand for credit has picked up, banks still have surplus cash at their disposal. Today, they parked Rs 43,000 crore through the Reserve Bank of India’s reverse repo window. In addition, they have parked over Rs 1,06,000 crore in mutual fund schemes, due to want of lending avenues.

“Luckily for the markets, the bidding process got over nearly a month before the first instalment of advance tax is to be paid. So, the pressure on the money markets will be less,” said the treasury head of a large public sector bank.

The yield on 10-year government securities fell today after news of the close of 3G auction was announced, as the market drew comfort from the fact that the government may lower its planned borrowing of Rs 4,57,143 crore due to the windfall.

The Centre had budgeted to mop up around Rs 35,000 crore from the auction. The yield on the benchmark government paper (7.80 per cent maturing in 2020) ended at 7.44 per cent, the lowest in five-and-a-half months, as against yesterday’s close of 7.50 per cent.