Rupee weakness to impact telecom capex

Anytime the rupee moves sharply against the dollar, telecom analysts rush to downgrade shares of Bharti and Idea, thanks to the foreign currency debt on their books. With the rupee weakening 6.64 per cent in the current financial year, analysts expect the currency fluctuation to impact balance-sheets of Idea and Bharti Airtel.

A weak rupee impacts telecom companies in two key ways. First, with nearly 60 per cent of capital expenditure billed in dollars, the rupee's weakness would increase capex payouts. Second, currency volatility would also impact their short-term interest payouts for their dollar denominated loans. Explains Emkay Global: “Currency fluctuation will impact balance sheet as operators have exposure in foreign currency debt. Bharti, which has 61 per cent dollar denominated outstanding debt as on FY15 (of which 60 per cent is floating) and with un-hedged outstanding payables, will be severely impacted. Idea has limited debt exposure (15 per cent) in foreign currency and majority of that is hedged.”

 

 

However, a spokesperson for Idea said the company has hedged its foreign currency exposure till 2018 and does not see any risk emanating from the rupee’s weakness. Also, as far as capital expenditure is concerned, Idea intends to fund it through internal accruals and is not expected to take any debt for the same.

The currency risk is perceived to be much higher for Bharti, given the level of dollar debt on its books. While a sharp move in the currency would impact the company’s balancesheet on a quarterly basis, over the past couple of years, the company has taken several measures to mitigate its forex risks. Analysts claim the company has changed the composition of its foreign currency debt over the past couple of years. The company has also completely hedged its short-term payouts, claim bankers.

 

 

Till four years ago, nearly 75 per cent of Bharti’s debt was in US dollars, which is now down to 45 per cent. Over 2013 and 2014, the company has raised nearly ^2.4 billion through long-term bonds. While the rupee’s move against the dollar would lead to some impact, some of this can be offset by gains made on its euro bonds. The rupee has appreciated against the euro from 2013-14.

In addition, the company is in the process of monetising some of its assets in Africa. After monetising the tower assets earlier this year, the company is also in talks with Orange to sell some of its other assets. Both these deals would fetch the company dollar receipts, which would bring down risk further. However, capex spends by both Idea and Bharti would increase by three per cent and six per cent, respectively, due to the rupee’s 6.64 per cent fall in the current financial year.