Stock Analysis, IPO, Mutual Funds, Bonds & More

Relief for telecom’s one less worry for lenders

Loans to the telecom sector may not slip in the near term, hope banks.

, ET Bureau|
Nov 22, 2019, 09.03 AM IST
Late on Wednesday the Union Cabinet approved the deferral of spectrum dues from telecom companies for the next two financial years — 2021 and 2022.
Mumbai: The two-year moratorium on spectrum payments for telecom companies has eased banking anxieties on loans and guarantees to the debt laden companies and bankers are relieved they do not have to bother about loans from the sector slipping at least in the near term.

“This is a breather for telecom companies because this spectrum payment and other payments linked to the recent Supreme Court order had raised questions on the viability of these companies. This cabinet decision will improve cash flows for these companies and reduce liabilities. Though there are still some sick companies and NPAs in the sector, this move, as of now, is a positive one,” said Mrutyunjay Mahapatra, CEO of Syndicate Bank.

Late on Wednesday the Union Cabinet approved the deferral of spectrum dues from telecom companies for the next two financial years — 2021 and 2022. It also extended the number of payment instalments to 18 from 16 currently, giving a ₹42,000-crore relief to Airtel, Vodafone Idea and Reliance Jio.

This is especially so for Vodafone Idea and Airtel. Both reported record losses in the quarter ended September. As per Department of Telecom’s (DoT) calculations submitted to the SC on July 15, telecom companies owed nearly ₹93,000 crore in license fees, penalties and interest. Telecom companies also owe over ₹41,000 crore in spectrum usage charges. Vodafone Idea and Bharti Airtel are the worst hit, with combined dues of over ₹80,000 crore, according to these calculations.

“Spectrum payment along with the SC related payment would be just too much for these companies to manage. They would not have been in the position to service their debt and banks were seriously looking at restructuring loans to these companies with high chances of some loans slipping into NPAs. This, along with the company’s decision to increase tariffs, will increase the chance of survival,” said an executive from a private sector bank.

Latest RBI data show that banks’ exposure to telecom was ₹1.15 lakh crore as of September 2019, up 25% from ₹91,946 crore a year ago. A lion’s share of this exposure is to telecom companies.

“This is now a lifeline for these companies and by extension to banks. There is no immediate risk of loans slipping but it remains to be seen whether banks extend their guarantees on spectrum payments to these companies, which typically come with a timeline. There is hope that the government may waive penalties and interest from the payments due,” said Nitin Aggarwal, analyst at Motilal Oswal Securities.
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links

Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service