Moderate participation expected in spectrum auctions; telecom industry's debt to elevate at Rs 4.6 cr in FY21: ICRA

Rating agency ICRA expects moderate participation for the upcoming spectrum auctions at Rs 55,000-Rs 60,000 crore due to the limited financial flexibility of the industry.

The Telecom Regulatory Authority of India (TRAI) has recommended auctions with one of the largest quanta of spectrum on offer - more than 8,500 MHz, which at reserve price, is valued at around Rs 5.7 lakh crore.

However, ICRA expects a relatively muted participation fetching around only Rs 55,000 - Rs 60,000 crore to the exchequer.

"This, along with the impending 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," ICRA said in a study on Wednesday.

"Such a high valuation is on account of high reserve prices and high quantity of spectrum for the newer bands i.e. 700 MHz and 3300-3600 MHz, which are primarily expected to be used for 5G. The 700 MHz was put to auction in October 2016 where it went unsold and thereafter the price for this band has been revised downwards for the forthcoming auction."

According to ICRA's Assistant Vice President for Corporate Ratings Ankit Jain, the ratings agency foresee minimal participation in the 700 MHz band and expects relatively better participation in the 800 MHz and 1800 MHz bands, that beholds significant expiries for incumbents in 2021, and thus the telcos will acquire it for continuation of 4G services.

The Centre has budgeted Rs 1.33 lakh crore as non-tax receipts from the telecom sector for FY2021.

"While the regular receipts - license 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 as per ICRA expectations," the statement said.

In addition, the telcos are required to pay Rs 90,000 crore as AGR dues as per the Supreme Court order, but the payment terms are yet to be finalised in the 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 GoI collections."