BackRising spectrum bids worry telecom investors
The seventh day of the 2G spectrum auction ended with 49 rounds, garnering bids worth more than `58,000 cr
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New Delhi: Investors in telecom companies that are participating in the ongoing 2G spectrum auction worry the firms may end up having to borrow more than ever to finance their heavy bids for the much-needed airwaves.
Monday, the seventh day of the auction for the second-generation spectrum, ended with 49 rounds garnering bids worth more than ₹ 58,000 crore.
The price per megahertz (MHz) of 900MHz spectrum in Delhi went up to ₹ 740.96 crore, more than double the reserve price.
The main concern for the investors is the rising debt on the telcos’ balance sheets due to the heavy bidding for the spectrum. The telcos are still recovering from the debilitating 2009 tariff war and the 2010 auction for 3G and broadband wireless access spectrum that left them heavily leveraged.
“They have seen nowhere near the money they paid for the 3G auction from the services despite rolling out as fast as possible. Post the high debt they took on for the spectrum, even banks have distanced themselves from the telecom companies," Hemant Joshi, a partner at Deloitte Haskins and Sells, said. “This time around it seems the already weakened balance sheets will see further leveraging."
Bidding activity at the end of the 49th round on Monday was positive in six circles, indicating the auction could need another two days to complete, a telecom department official said, requesting anonymity.
Data for the seventh day of the bidding showed the auction is heating up in the 1,800MHz spectrum band, with price rises registered in seven circles—Assam, Delhi, Gujarat, Madhya Pradesh, Maharashtra, Mumbai and Western Uttar Pradesh—to between 6% and 285% above the reserve price.
The price for the 900MHz spectrum in Mumbai and Kolkata remained unchanged since Thursday, at 71% and 55% above their respective reserve prices.
According to the data available on Monday, assuming all the airwaves are sold, the 900MHz spectrum will earn the government almost ₹ 25,000 crore, or 81% more than the reserve price.
The prices have gone well above analysts’ expectations.
“We expected that the 1,800MHz spectrum would remain largely close to the reserve price, while for 900MHz spectrum the price should have stayed around 1.5 times the reserve price," said a Mumbai-based telecom analyst with a multinational brokerage.
The cumulative debt of Indian telecom companies is around ₹ 2 trillion, according to the Telecom Regulatory Authority of India.
Bharti Airtel Ltd, India’s largest telco by revenue as well as subscribers, ended the December quarter with a debt-to-Ebitda ratio of 2.2, with net debt of around $9 billion. Idea Cellular Ltd’s debt-to-Ebitda ratio was around 1.5 and Reliance Communications Ltd’s was around 3.5.
Idea and Reliance Communication’s net debt was around $1.8 billion and $6.5 billion, respectively.
Ebitda, or earnings before interest, taxation, depreciation and amortization, is a key indicator of profitability. A debt-to-Ebitda ratio is a measure of a company’s ability to pay off its incurred debt.
Idea Cellular declined 8.43% to ₹ 126.50 a share on Monday on BSE, Bharti fell 2.57% to ₹ 307.40 and Reliance Communications fell nearly 4% to ₹ 120.35, on a day the benchmark Sensex lost a mere 0.21% to end at 20,334.27 points.
Shares of Reliance Industries Ltd, which owns Reliance Jio Infocomm Ltd, one of the participating bidders and the dark horse in the auction, rose 0.9% to ₹ 821.60.
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