Bankers cautious on extending credit to telecom players

When it comes to telecom, bankers are a sure conservative lot even if it means a sluggish sitting on cash surplus or lower growth in credit book. With spectrum being permitted to be taken as collaterals, lenders could see increase lending but this time there will be a lot more of caution. According to ratings agency Crisil, the telecom sector would need nearly Rs 90,000 crore of finance for the spectrum allocations.

MS Raghavan, chairman and managing director, IDBI Bank told dna, "IDBI will increase its telecom exposure very marginally, as we would prefer to be cautious rather than risk-taking. We are re-balancing our portfolio to have more retail exposure and lesser corporate exposure. To take spectrum as a collateral is a comfort but we would not go for it in a big way."

Crisil says that auction will bloat debt levels of telcos in the form of deferred payments due to the government. The combined debt/Ebitda levels of large operators could increase to 3.5-4.0 times after the auction from 3.3 times now.

A senior SBI official said," We will be cautious in lending, but we could increase our exposure to established players who are already our clients. But the staggered payment for the auctions spread over 10 years will also give the banks to evaluate the proposals. The bidders only need to pay 30 % of the spectrum price upfront."

Manoj Damle, director, Crisil Ratings, said, "Another increase of 5 paise will not be an easy task in the face of intensifying competition, especially in data. Ability to increase ARPM will be a key monitorable."

Telecom operators Bharti Airtel, Vodafone, Uninor and Aircel have submitted applications for participating in the spectrum auction, scheduled to start from March 4. Monday was the last day to submit the applications.

Most spectrum up for the auction is presently held by Airtel, Vodafone, Idea Cellular and Reliance Telecom. Their licenses are set to expire in 2015-16. It is mandatory for these companies to bid for spectrum if they have to continue offering mobile and other telecom services as their permits near expiry. The participation by players like Uninor and Aircel has enhanced the chances of aggressive bidding at the auction.

According to Crisil estimates, operators will shell out over Rs 90,000 crore to bag airwaves at the upcoming auction. With nearly half of Rs 120,000 crore annual revenues at stake for large operators, the importance of forthcoming auction of spectrum can't be overstated. The bidding will be driven by demand for 900 MHz spectrum, considered most efficient for wireless telephony.

Of the total payments to be made, the upfront payment to government will be about 30%; operators are expected to opt for deferred payment for the balance, though repayments are spread over 10 years and begin after a moratorium of two years.

Sudip Sural, senior director, Crisil Ratings, said, "Indebtedness in the sector is expected to increase by around Rs Rs 70,000 crore, or a third of current debt. Licences for over 60% of the total 900 MHz spectrum currently held by the large operators are up for renewal. We expect some players to also bid for 900 MHz spectrum in circles where they don't have any to support their growing subscriber base, improve customer experience and offer 3G services."