Banks okay to lending to big telcos

Major telecom players may not find it difficult to get loans to pay for the spectrum they won in the auction even though banks are expected to tread cautiously on extending credit to the debt-laden telecommunication sector.

Players such as Bharti Airtel, Vodafone India and Idea Cellular are likely to get enough credit because of their better ratings and relatively healthier balance sheets.

Vaibhav Agarwal, Senior Analyst, Angel Broking, said: “Banks may not have to worry on the big players who were bidding as their balance sheets are healthy. Hence, I don’t see it as a major problem as far as funding is concerned. Also, the payment of over ₹1 lakh crore is staggered over a period of time and so about ₹30,000 crore can be easily funded by banks for now.”

The Centre could mobilise over ₹1 lakh crore (nearly $16 billion) from the spectrum auction, of which a majority of the funding that the telecom companies will need to raise is expected to come through debt — roughly half would be through loans from banks. Telecom companies have also been allowed by the Reserve Bank of India to raise foreign currency debt to pay for the spectrum.

Private sector banker, Parthasarathi Mukherjee, Group executive - Corporate and International business, with Axis Bank, said, “We have not been approached by companies yet. But we will not be averse to lending. We do not have significant exposure and also don’t lend below investment grade.”

The other operators involved in the bidding process were Reliance Communications, Reliance Jio Infocomm, Uninor, Tata Teleservices and Aircel.

A public sector bank official was concerned that the value of the collateral or the loan security could decline over time. According to a senior State Bank of India official, “Yes, smaller (telecom) players may get affected and banks will not take additional exposure to them…We will assess the credit rating of the telecom players as different companies have got different external credit rating. Wherever we assess the risk is low, we will give and if not comfortable we won’t. We have our internal policy for telecom companies.”

According to reports, the total telecom sector exposure for all banks is reckoned to be around ₹86,000 crore. IDBI Bank, which has an exposure of about ₹18,000 crore in the telecom sector, has, however, said it is not enthused in lending to the auction participants.

Analysts said that things could get better for the telecom industry as the Government also plans to announce reworked merger and acquisition (M&A) guidelines along with spectrum sharing and trading rules, which could bring consolidation into the sector.

The SBI official doesn’t believe that the profits will get affected as the usage will not come down even if tariffs rise as everyone has become a slave of the system.

“We have seen performance of good companies, the average revenue per unit is going up and also the average revenue per minute is going up and…profits are not coming down.”