ICRA retains negative outlook on telcos on rising debt levels Wednesday Oct 19,2016

Rating agency ICRA on Wednesday Oct 19,2016 said the recently concluded spectrum auctions will push up operators’ debt to ₹4.25-lakh crore , and retained its negative outlook on the sector.

“We continue to have a negative outlook on the telecom sector,” its analyst Harsh Jagnani told reporters on a conference call. 

Reasoning

He pointed out that the agency’s call on the outlook is driven by the need for high investments in network and spectrum purchase and the intense competition which impacts pricing power, leading to lower realisations. 

Jagnani said revenue from data, which is the prime source of incremental revenue, come over a longer period of time, which also affects the players’ cash flow in the short to medium term. 

All these factors, added with the debt servicing needs, make return indicators a difficult proposition.

ICRA estimates the debt levels for the sector to rise to ₹4.25-lakh crore by end of March 2017, from ₹4.10-lakh crore in March 2016, primarily due to the additional commitments made by companies in the recently concluded spectrum auction, which was a big flop for the government’s non-tax revenue generation plans. 

This will lead to a very high debt to pre-tax ratio of 5.6:1.0, he said. 

The auctions fetched only a fraction of the projected amount at a shade lower than ₹66,000 crore, while the government budgeted a whopping ₹5.67 trillion proceeds from the sale.

Due to high reserve prices, only 40 per cent of the lower end of the airwaves could find takers at the October 1-3,2016 auctions