The much-awaited telecom spectrum auction that starts today is likely to balloon the already bloated debt of
telecom companies.
Telecom companies, already saddled with huge debts and pending government dues payments, have raised or are in the process of raising funds ahead of the auction.
The auction
The government proposes to auction around 2,250MHz of the spectrum — worth approximately Rs 3.92 lakh crore at the reserve price — across various bands.
A total of 2251.25 MHz of airwaves, across 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz frequency bands have been put on the block. Many brokerages, however, have predicted that more than 80% of the spectrum would remain unsold, and the government to get less than Rs 50,000 crore.
Analysts say the moderate participation would largely be limited to the renewal of the expiries in the 800 MHz and 1800 MHz bands.
Telco debts
While the telecom companies are enjoying the Covid-led upsurge in business, they still grapple with huge debts.
As of September 2020, Bharti Airtel had about Rs 1.29 lakh crore in debt, and Vi about Rs 1.7 lakh crore in net debt and dues to the government. Analysts reckon that this debt may grow hugely after the spectrum auctions. Only Reliance Jio is debt-free.
Vodafone had gross debt of Rs 1,17,370 crore comprising deferred spectrum payment obligations to the government of Rs 94,200 crore and debt from banks and financial institutions of Rs 23,170 crore.
Bharti Airtel Ltd’s net debt, including lease obligations, rose to Rs 1.18 lakh crore compared with nearly Rs 1.13 lakh crore a year ago, according to its annual report for 2019-20.
The extent
Though most of the firms are heavily indebted they need to borrow for these auctions.
However, the banks would be in a quandary as extending more debts when the telcos are not generating much additional cashflows due to pricing constraint would be tricky.
Even at base price, the telcos need about Rs 1 lakh crore with the rest in installments over the next many years, but that upfront payment amount is also huge. To meet the new payment obligations, telco cashflows need to rise, which is a difficult proposition.
Fundraising
However, telcos have raised funds from the debt market too. Airtel has raised $1.25 billion overseas through senior and perpetual bonds, the largest fundraising by any Indian investment-grade issuer since January 2019. The company has priced $750 million worth of senior 10.25-year bonds at a yield of 187.5 basis points for an implied coupon of 3.250%. Vodafone, on the other hand, is looking to raise Rs 25,000 crore and is in talks for it.
The silver lining
The good thing is telco revenues are rising though the pricing power is yet to return.
Bharti Airtel had posted a net profit of Rs 854 crore for the third quarter ended December 2020, compared to Rs 1,035 crore loss a year ago, on the back of improved realisations and the strong customer addition.
Airtel logged its highest-ever consolidated quarterly revenue of Rs 26,518 crore in Q3 FY21, up 24.2% over the year-ago period.
Debt-ridden Vodafone Idea reported narrowing of consolidated loss to Rs 4,532.1 crore in the third quarter ended on December 31, 2020, mainly on account of a one-time gain from stake sale in Indus Towers.
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