The telecom companies stand to increase their debt levels steeply if they participate in the forthcoming July auction of spectrum by the government.
The telecom companies stand to increase their debt levels steeply if they participate in the forthcoming July auction of spectrum by the government. The consolidated debt level of the industry as in December 2015 stood at around Rs 3,80,000 crore as against around Rs 2,90,000 crore as in March 2014 according to credit agency ICRA’s estimates.
Sabyasachi Majumdar, senior V-P, co-head corporate sector ratings, said they estimated that the industry debt would rise to Rs 4,60,000 crore, “further stressing the capital structure of the industry and deteriorating the debt protection metrics.”
This rise in debt is expected to worsen the gross debt/OPBDITA levels of the industry to around 6.5 times as against the current levels of 5.4 times. But the industry is in a catch-22 like situation. If they don’t bid for spectrum their service will suffer and hey will lose customers and if they bid it will effect their balance sheet. The telcos have resorted to deleveraging by selling their stake in certain assets.
In ICRA’s estimates, these transactions, if successful, can fetch Rs 30,000 crore to the industry. However, in the longer term, steady improvement in EBITDA is the key to deleveraging of the industry.
