Finance ministry prepares to bailout debt-ridden telecom firms

Source: LiveMint.com, July 26, 2017

New Delhi: For telecom firms squeezed by falling margins and rising debt, there is light at the end of the tunnel.

As part of a bailout package, the finance ministry is considering relaxing some of their payment obligations, on the logic that a robust sector is good for government finances as well.According to a government official who spoke on condition of anonymity, if the industry is in bad shape, the government will anyway not get its dues; whereas if relief measures place telecom firms on a stronger footing, their interest in future spectrum auctions will go up.

Telecom firms start paying for spectrum two years after an auction, and pay over eight years, along with interest. Companies have been seeking an increase to 16 years, and a shift to marginal cost of funds-based lending rate (MCLR) on interest payments. MCLR is a system of interest rate computation introduced by the Reserve Bank of India (RBI) from April 2016 to reflect the latest cost of funds.

The government is in favour of both demands, the official cited above said. Other contours of the relief package are yet to be finalized, he added. The finance ministry has done an assessment and arrived at the conclusion that re-scheduling spectrum payment dues and interest will not hurt exchequer, and could actually fetch more by way of non-tax revenue in future, the official said.

“Industry is part of the government’s clientele. If a sector is showing signs of stress, we cannot look the other way,” he added.

The finance ministry’s inclination to offer telcos some relief comes in the wake of the tepid response to the last round of spectrum auctions in October, in which some of the bands received no bids. The government collected 20% less than its targeted non-tax revenue from the sector in 2016-17 at Rs78,715 crore. For 2017-18, the ministry has conservatively estimated its receipts from the sector at Rs44,342 crore.

Besides, easier payment options found favour with the government as it does not want the problem of bad debt to the tune of Rs9.6 trillion in the economy to worsen on account of the telecom sector.

Concerns over loans to telecom firms have been rising for a while. On 18 April, RBI advised banks to set aside higher provisions for good loans in stressed sectors, specifically telecom. On 2 June, The Times of India reported State Bank of India has written to the telecom secretary pointing out the “highly unsustainable levels” of debt in the sector.

According to an industry executive who spoke on condition of anonymity, re-scheduling spectrum payments and changing interest computation will give the industry a benefit of around Rs75,000 crore in cash flow over the revised payment period of 18 years.

The government official quoted above said since only a part of the deferred payment is accounted for in the annual non-tax revenue estimate, it will not hurt the exchequer.

Telecom firms are loaded with debt—around Rs4.85 trillion at the end of December—and owe close to Rs3 trillion in spectrum payment charges, according to industry estimates.

 

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