ICRA expects muted participation in spectrum auction, sees industry debt rising

Despite the anticipated improvement in the cash flow generation in the current financial year post the tariff hikes, the debt coverage metrics is expected to continue to remain weak given the unyieldingly high debt levels, it said.

Statutory payouts by companies as well as participation in the upcoming spectrum auctions, though muted, will push telecom industry's debt levels to Rs 4.6 lakh crore during FY21, rating agency ICRA said on Wednesday.

It said the upcoming spectrum auctions are expected to see "muted" or "modest" participation, fetching around Rs 55,000-60,000 crore to the exchequer.

Despite the anticipated improvement in the cash flow generation in the current financial year post the tariff hikes, the debt coverage metrics is expected to continue to remain weak given the unyieldingly high debt levels, it said.

The spectrum-related outgo coupled with impending Adjusted Gross Revenue (AGR) dues, are expected to result in further elevation of the industry debt to around Rs 4,60,000 crore as on March 31, 2021 despite sizeable deleveraging done by the telcos as well as the anticipated improvement in cash flow generation post the tariff hikes.

While it is expected that the Digital Communications Commission may hold back the 3,300-3,600 MHz spectrum chunk from the forthcoming auction and put the remaining 2,475 MHz spectrum on the block, it will still be valued at a whopping Rs 4.35 lakh crore.

"We foresee minimal participation in the 700 MHz band and expect relatively better participation in the 800 MHz and 1800 MHz bands, that beholds significant expires for incumbents in 2021; and thus the telcos will acquire for continuation of 4G services."

"However, even with this modest participation in auctions, the debt levels of the industry are likely to elevate further to Rs 4.6 lakh crore," said Ankit Jain, Assistant Vice President, Corporate Ratings, ICRA.

The participation in the auctions would be constrained by the limited financial flexibility of the industry, hampered by increasing debt levels. As per ICRA's estimates, the consolidated debt level of the industry as on March 31, 2020 stood at around Rs 4.4 lakh crore, and the participation in the forthcoming auctions along with the AGR payouts would further augment the debt levels.

ICRA noted that the government had budgeted Rs 1.33 lakh crore as non-tax receipts from the telecom sector for 2020-21.

"While the regular receipts – licence fee and spectrum usage charges are expected to fetch around Rs 20,000 crore, the telcos will have to pay Rs 20,000-25,000 crore as upfront payment for the forthcoming spectrum...," it said.

Besides this, telcos are required to pay Rs 90,000 crore as AGR dues as per the Supreme Court order, although the payment terms are yet to be finalised in the apex court.

"If the telcos are required to pay this amount upfront, the Government will meet its target for FY2021, while in case of staggered payment terms stretching to 20 years, there will be a sizeable shortfall in the Government collections," it added.

According to sources, the Department of Telecom is likely to hold the spectrum auction before October without the frequency band considered suitable for 5G services.

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