Rating agency Icra today said the recently concluded spectrum auctions will push up operators’ debt to Rs 4.25 trillion, and retained its negative outlook on the sector. “We continue to have a negative outlook on the telecom sector,” its analyst Harsh Jagnani told reporters on a conference call. He pointed out that the agency’s call on the outlook is driven by the need for high investments in network and spectrum purchase and the intense competition which impacts pricing power, leading to lower realizations. Jagnani said revenue from data, which is the prime source of incremental revenue, come over a longer period of time which also affects the players’ cash flow in the short to medium term. Also Read - 4G spectrum auction: Reliance Jio comes out as highest bidder, Airtel followsAlso Read - Telecom spectrum auctions begin today: Here's all you need to know
All these factors, added with the debt servicing needs, make return indicators a difficult proposition. Icra estimates the debt levels for the sector to rise to Rs 4.25 trillion by end of March 2017 from Rs 4.10 trillion in March 2016, primarily due to the additional commitments made by companies in the recently concluded spectrum auction, which was a big flop for the government’s non-tax revenue generation plans.
This will lead to a very high debt to pre-tax ratio of 5.6:1, he said. The auctions fetched only a fraction of the projected amount at a shade lower than Rs 66,000 crore, while the government budgeted a whopping Rs 5.67 trillion proceeds from the sale. Due to high reserve prices, only 40 percent of the lower end of the airwaves could find takers at the October 1-3 auctions. ALSO READ: Spectrum auction roundup: No takers for 700MHz band, unrealistic pricing blamed for moderate response
Nearly Rs 47,000 crore of the debt will have to be refinanced as the leveraged companies will result in some deficit, the agency said. The industry as a whole, will be investing Rs 45,000 crore in expansion over the next one year, he said. It will be paying Rs 25,000-30,000 crore every year towards spectrum auction commitments over the next decade, the agency said. When asked about the recent statement by Anil Ambani, wherein he expects Reliance Communications’ debt to go down by 70 percent because of the merger with Aircel and the tower business sale, Jagnani declined to give a direct answer saying the debt of the industry as a whole will remain the same.