Telcos under stress, can default on loans: Banks tell panel
Punjab National Bank and Axis Bank are the two other lenders that attended the IMG meeting today. (Representative Image: Reuters)
Four major lenders, including SBI and HDFC Bank, today voiced concerns over “stress” in the telecom sector and flagged possibility of defaults by debt- laden operators at a meeting with an inter-ministerial group. The group, constituted to suggest policy reforms in the telecom sector, asked the banks to come back with more information like level of exposure to telecom sector and extent of ‘stress’ in the next meeting, an official who was present in the meeting told PTI. “They (the banks) say that the sector may be in stress and there can be defaults … We have asked the banks for more data,” said the official after emerging from the two-hour long meeting with the lenders. Punjab National Bank and Axis Bank are the two other lenders that attended the IMG meeting today. The IMG may meet these banks once more but the date for the same has not been finalised yet.
The group, comprising officials from telecom and finance ministries, is meeting operators and lenders to discuss financial difficulties faced by the telecom industry, whose debt burden stands at a whopping Rs 4.6 lakh crore. One of the officials said that SBI’s exposure to telecom companies is in the range of Rs 80,000 crore. An executive of PNB said that if revenues of operators have come down “a solution has to be found”, but remained tight-lipped about the measures that the bank proposed in the meeting. Last month, SBI chairman Arundhati Bhattacharya in a letter to the Telecom Secretary had stated that the stress in the telecom sector has reached “unsustainable levels”.
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“The stress in the sector has reached highly unsustainable levels after the entry of new players and launch of free services which led to erosion of topline and EBITDA of the telecom service providers,” the letter had said. The letter had noted that the total EBITDA in the sector on an annualised basis is Rs 65,000 crore, which is “clearly unsustainable” for debt of more than Rs 4 lakh crore. The earnings before interest, tax, depreciation and amortisation or EBITDA is a measure of a company’s operational performance. SBI had also sought immediate and large scale intervention to “stem the slide”. The inter-ministerial group is next scheduled to meet the big three operators, Airtel, Vodafone and Idea Cellular, on June 16.
The panel has already met senior executives from Reliance Jio, Reliance Communications, Tata Teleservices and Aircel. It has held discussions with telecom PSUs Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd too this week. Meanwhile, the telecom regulator will meet all the operators tomorrow to understand the financial difficulties being faced by the industry and measures that can be taken to ease the situation. The incumbent operators have been vocal about the onslaught of free voice and data offers by the aggressive newcomer Reliance Jio (RJio), and its impact on the industry’s revenue in FY2016-17. Incidentally, India, with over 1.16 billion mobile users is the second largest telecom market in the world, after China.
But telecom operators lament they are facing pressure on income and profitability on account of competition intensified by the entry of RJio — owned by Mukesh Ambani. Last month, Idea Cellular reported a consolidated loss of Rs 325.6 crore in the three-month period ended March 2017, hurt by the severe tariff war. India’s largest telecom operator Bharti Airtel, too, reported its lowest quarterly profit in four years as net earnings plunged 72 per cent in January-March, hit by “sustained predatory pricing” by Jio.