Mumbai: Indian mobile phone companies controlled by billionaire investors are preparing to add to their $30 billion debt load as the government sells $7 billion in wireless licences in three months.
Sunil Mittal’s Bharti Airtel, Anil Ambani’s Reliance Communications and other operators may find banks reluctant to lend as economic growth slows, according to Vineet Gupta, Singapore-based analyst at Moody’s Investors Service. The yield on Tata Teleservices’s 13-year bonds climbed 30 basis points this quarter to 288 basis points more than similar-maturity government debt. The similar spread for Vodafone Group debt is 145 basis points.
Lenders are approaching a regulatory limit on credit to phone operators and the Indian Supreme Court’s decision this year to scrap 122 previous permits put $2 billion of existing loans at risk, Moody’s estimates. Finance Minister Pranab Mukherjee is counting on India’s first airwaves auction since 2010 to help narrow Asia’s widest budget deficit.
Liabilities surged at companies including Bharti, India’s largest mobile operator, and Reliance Communications as they paid a total of more than 1 trillion rupees ($18 billion) in 2010 for third-generation phone and wireless broadband permits. Spokesmen at Bharti, Reliance, Idea Cellular and Vodafone declined to comment.
Fund scarcity, the highest interest rates among major Asian economies and the regulator’s recommendation to increase licence fees 11-fold will prevent some operators from bidding, according to Rajan Mathews, director-general for the New Delhi-based Cellular Operators Association of India, an industry lobby.
In February, India’s top court scrapped licences including those held by Bahrain Telecommunications, the UAE’s Emirates Telecommunications Corporation, Norway’s Telenor ASA and Russia’s AFK Sistema, and ordered a fresh auction of airwaves. Two months later, the Telecom Regulatory Authority of India set a reserve price of 181 billion rupees for a fresh permit spanning the country, compared with 16.6 billion rupees for similar licences sold in 2008.
Vodafone, Idea and Bharti are among companies that helped build the world’s second-biggest mobile-phone market after India opened up the industry in the 1990s. Subscribers have grown 158 times to 919 million since 2001, and competition means users enjoy some of the world’s cheapest calls.
Banks must take their own decisions on responding to any demand for new funding from phone companies and the government won’t give them any guidance on the matter, D.K. Mittal, banking secretary at the finance ministry, said in New Delhi on June 7.
“Our decisions to lend to each of the telecommunication companies in the past have been based on several factors including the credit rating of the company and viability of the business,” Pratip Chaudhuri, chairman of Mumbai-based State Bank of India, the nation’s largest lender, said on June 8. “We don’t change that on a day-to-day basis and will stick to it.”
Local borrowing costs have increased since the last auction of phone permits two years ago, as the central bank raised interest rates by 375 basis points over 2010 and 2011 to curb inflation. Reserve Bank of India Governor Duvvuri Subbarao cut the repurchase rate in April by 50 basis points, or 0.5 percentage point, to 8 per cent in the first reduction since 2009.
“If phone companies go the debt route to raise funds for spectrum, they’ll be further leveraging, which will have negative implications,” Nitin Soni, Singapore-based associate director at Fitch Ratings, said in an interview on June 8. “The operators’ balance sheets are already so overstretched. We have a BBB- with a negative outlook for Bharti. If they pay a lot of money for spectrum, it could lead to negative action.”
Benchmark five-year bond yields for AAA rated companies in India are at 9.38 per cent, compared with 4.08 per cent in China and 3.70 per cent in South Korea, according to data compiled by Bloomberg. Tata Teleservices’s 2025 security last traded at the end of May at 11.26 per cent, according to prices from the Fixed Income Money Market Association of India.
