Even if they don?t bid for new spectrum, they will need to pay up for what they already have at auction-determined price
When, on August 3, the Cabinet fixed R14,000 crore as the reserve price for auctioning 5-Mhz spectrum in the 1,800-Mhz band, Bharti Airtel CEO Sanjay Kapoor told FE that it was unreasonable, high, did not make a business case and, above all, came at a time when the telecom industry was going through a rough patch.
While Kapoor did not divulge whether Bharti would participate in the bids or not, even if one assumes it would not, the high reserve price would force it to think of options to raise money ? either through equity or debt. The story is the same for other incumbent operators like Vodafone, Reliance Communications, Idea Cellular and Tata Teleservices. All these operators have enough 2G as well as 3G spectrum, but, sooner or later, would have to pay up for the spectrum they hold at the auction-determined price. Whether these operators need to pay for all spectrum held by them or for beyond 4.4 Mhz or 6.2 Mhz would only get clear once the outcome of the Presidential reference currently in the Supreme Court is known, but assuming that it is for all the spectrum held by them, then the amount would be R1.05 lakh crore. Roughly, Bharti would have to pay R30,000 crore, Vodafone R45,000 crore, Idea R21,000 crore, RCom (GSM) R7,000 crore and TTSL (GSM) R5,000 crore.
Currently, the total debt of the telecom industry stands at a staggering R200,000 crore. The debt of the top three listed telecom firms, Bharti, Idea and RCom, stands at R112,688.39 crore with Bharti?s at R71,792.70 crore, Idea?s R11,249.69 crore and RCom?s R29,646 crore. Analysts say the options available before these firms to raise money are either through diluting promoters? equity ? through either some follow-on offer or QIPs ? taking more debt from banks, or listing their tower arms, which some have been talking about for some time now.
However, the firms would find most of the route difficult in the current times when the valuation of telecom firms has taken a hit, balance sheets are leveraged and market sentiments are down. ?I don?t see mobile operators finding it easy to either sell stakes or take on more debt as valuations are down and banks are wary of lending,? said Jagannathan Thunuguntla, head equity research, SMC Cap.
?The balance sheets are over leveraged, operators are yet to fully digest the costs of 3G payout and banks are unwilling to lend any further,? said Hemant Joshi of Deloitte Haskins and Sells, adding that even foreign investors are scared of entering the sector looking at its recent history. Seen individually, some companies are better poised than others in raising funds through equity or debt. Take, for instance Bharti: Though its debt stands at R71,792.70 crore largely due to its $9-billion acquisition of Zain in 2010, the company may still be able to raise money through banks, considering that it generates free cash flow of R10,132 crore a year. It also has the option of diluting further equity or listing its tower arm, Bharti Infratel. The point is whether the timing is right for any of these routes?
?Any further debt by Bharti at this point of time would stretch its debt equity ratio further from 1.42. The timing of equity dilution is not good,? added Thunuguntla. ?Vodafone, which is not a listed entity in India, has talked about an IPO, but has put it in abeyance till the time its taxation issues are resolved with the government. The firm needs to pay around R15,000 crore as capital gains tax plus interest and penalty for its acquisition of Hutchison?s stake in Hutch-Essar in 2007.
The debt-equity ratio of Idea Cellular is good at 0.86; so, it can go for raising more debt. However, the equity route may be difficult for it since the promoters? stake is only around 45.95%, unlike, say, Bharti or RCom where they are between 65-68%. RCom has not been able to get a strategic buyer for 26% of its stake since the last two years.
Earlier this year, the company refinanced its foreign currency convertible bonds worth $1.18 billion through Chinese banks and recently shelved the Singapore listing of its undersea cable arm Flag on the back of poor market conditions. The company has been trying to look for buyers for its tower arm without any success so far.
