Analysts predict telecom industry’s debt may rise to Rs 6 lakh crore

According to news source, two research analysts separately said that the debt of the telecom sector may increase to Rs 6 lakh crore by this fiscal end following the spectrum purchase outgo, and network upgradation.

“Post the auctions, the debt levels of the industry would increase further to around Rs 6 lakh crore as on March 31, 2023, with the addition of the spectrum liabilities,” Ankit Jain, Vice President & Sector Head, ICRA said.

According to the Delhi-based credit rating agency, on the back of annual installments for spectrum payment coming to Rs. 13,365 crore for FY 2023, the cash outgo would stand at Rs 19,600 crore for FY 2024 and FY 2025 each, before increasing to Rs 65,500 crore from FY 2026 onwards.

Data Networks, the new competitor in the market, bought 51,236 MHz of spectrum across bands for Rs 150.173 lakh crore in an auction that concluded recently.

Reliance Jio bought 24,740 MHz of spectrum at Rs Rs 88,078 crore followed by Bharti Airtel 19,867.9 MHz for Rs 43,084 crore, and Vodafone Idea bought 6,228 MHz at Rs 18,799 crore.

"This is the highest-ever spend on spectrum auctions, partly driven by upgradation in technology to 5G and partly by relaxed payment terms. This amount will be in the form of a 20-year deferred spectrum debt at a 7.2% interest rate, which eases the repayment burden for the industry for this auction," Jain said.

The mid band which is 3300 MHz and the 26 GHz bands were the most sought after and would enable telecom operators to launch commercial 5G services. Further, the 700 MHz band which went unsold in the last two auctions, witnessed participation, with Jio purchasing 10 MHz across all 22 circles.

"Additional spectrum purchased in this auction could elevate the sector’s debt to Rs 6.1 lakh crore. Therefore, the sector’s debt/Ebitda is expected to rise to 4 .6x in the current fiscal, compared with 4.2x as on March 31, 2022," said Manish Gupta, Senior Director, CRISIL Ratings.

He also added, "Telcos have already invested nearly Rs 5 lakh crore over fiscals 2017-21 to roll out 4G services, resulting in the sector’s gargantuan debt (including lease liabilities) of Rs 4.73 lakh crore as on March 31, 2022."

The Department of Telecommunications expects that by August 10 the telecom service providers will deposit the first annual instalment towards spectrum purchase.

In the recently-concluded spectrum sale there were no bids from the telcos in the 600 MHz band and 2300 MHz bands. The telcos' participation in 900 MHz, 2100 MHz and 2500 MHz bands was muted.

"Despite the estimated weak leverage and elevated debt, cash-flow requirements of telcos would be supported by a moratorium of up to four years provided for adjusted gross revenue-related dues and favourable payment terms for the spectrum bought in the current auction," said Rakshit Kachhal, Associate Director CRISIL Ratings.

Following the radiowaves allocation this month itself, the telecom carriers are expected to introduce 5G network services by October this year.