Lenders look to renew connection with telecom sector
MUMBAI: After years of coldshouldering telecom companies as they struggled with heavy debt, lenders are warming up to the sector again.
With the recent tariff hikes and the rescue package brightening prospects for telcos, banks are waiting for one last thing before resuming lending: the government’s return of bank guarantees, as part of the package announced in September
Two bankers said that while the government is nudging them to lend, returning these guarantees could bring down their telecom exposure, most of which is in the form of bank guarantees.
A October 7 Business Standard report said the government would return bank guarantees worth ₹14,000 crore to Vodafone Idea and ₹8,000 crore to Bharti Airtel if they opted for the fouryear moratorium on payment of spectrum dues.
“Everything has improved right now,” one of the two bankers cited above said on condition of anonymity. “There was a thought that all the big telcos would not come on board as far as tariff hikes are concerned. But all are on board, and that is great for the market. I hope that with the increase in average revenue per user (Arpu), there will be more technology spends which would lead to better delivery of services,” the banker said.
Over the weekend, all three private telcos—reliance Jio Infocomm
Ltd, Bharti Airtel Ltd and Vodafone Idea Ltd—raised tariffs, which will help boost their revenues.
The banker cited above said that prices need to go up, even more, expressing hopes that once service quality improves, there could be another tariff hike of 10-20%.
“Prices need to go up a little bit more, and once the bank guarantees come back as promised by the government, it will be helpful. Overall, the exposures may actually come down after the guarantees come back,” he said.
Bharti Airtel, the first off the block to raise tariffs, said in its November 22 statement that it had always maintained that mobile Arpu needs to be at ₹200 and, ultimately, ₹300 to provide a reasonable return on capital.
“We also believe that this level of Arpu will enable the substantial investments required in networks and spectrum,” it had said.
The second banker cited above said that at a recent meeting with government officials, lenders pointed out that some concerns around the sector still need to be addressed before further loans are disbursed.
“Spectrum, used as a security against such loans, is treated as an intangible asset, and we believe there should be a provision for banks to sell them. That is the only security we have since no borrower will agree to give us tangible security like land against loans,” the banker said on condition of anonymity. Meanwhile, a Bloomberg report on November 12 said Vodafone Idea is in talks with State Bank of India for new loans.