Lenders get cold feet as spectrum bids reach stratospheric levels

17 Mar 2015

With bids for spectrum in the current auction exceeding INR1.023 trillion (USD16.27 billion) yesterday, financiers are growing increasingly cagey about lending to the sector, the Economic Times writes. Arundhati Bhattacharya, the chairperson of the State Bank of India (SBI), which has lent more than INR400 billion to the sector, was quoted as saying: ‘We will be extremely cautious about lending to the sector. We’ll go on a case-by-case basis and will be very selective. We will closely watch the leverage position of all telcos.’ Explaining the shifting stance, Rajiv Lall, the chairman of the Infrastructure Development Finance Corp (IDFC), pointed out that the nation’s operators are bidding heavily to retain spectrum resources and protect revenue rather than create new revenue streams: ‘If the purpose of the auction is to renew licences, which will reduce the return on equity and reduce cash flows, nobody will want to lend to these companies.’ Three of the cellcos currently bidding to retain frequencies saw drops in their shares yesterday, with Idea Cellular slumping 4.9% whilst Reliance Communications (RCOM) and Bharti Airtel dropped 4.1% and 2.8% respectively.

Whilst the fight for spectrum is a concern for creditors, the potential impact on expansion prospects is also creating unease amongst lenders. The financial burden in terms of initial outlay and interest payments from the auction could limit cellcos’ ability to expand their businesses to the extent that they will be unable to compensate for the outgoings.