Vodafone Idea, Bharti Airtel, Reliance Jio: Funding of spectrum bids & impact on debt

The telecom spectrum auction concluded, with the majority bids for renewals and some for capacity expansions. The Department of Telecom (DoT) has received about Rs 11,340 crore from the spectrum auction. Motilal Oswal Financial Securities said DoT may receive the full payment of Rs 6,860 crore from Bharti Airtel, while Vodafone Idea can opt for yearly installments — Rs 350 crore upfront and the rest over the next 20 years. RJio’s payments, it said, may be adjusted from its earnest money deposit (EMD). The annual payments for Vodafone Idea and Bharti Airtel, if opted for installments, would be 3 per cent and 1 per cent of Ebitda, respectively.

“The spectrum auction results have largely been in line with ICRA’s estimates and have fetched the exchequer around Rs. 11,340 crore, which translates into annual payout of around Rs. 1,100 crore for a period of 20 years at 8.65% rate of interest for the telcos. The participation in this spectrum auction was largely driven by the renewals of the expiring spectrum in the 900 MHz and 1800 MHz bands; coupled with some purchases in the 2100 MHz and 2500 MHz bands to strengthen the network. Apart from these, there was no activity in other bands," said Ankit Jain, Vice President and Sector Head - Corporate Ratings, ICRA Limited.

Bharti Airtel spent the most in the auction, acquiring spectrum worth more than Rs. 6,857 crore, followed by Vodafone Idea Limited at Rs. 3,510 crore, and Reliance Jio Infocomm Limited at around Rs. 974 crore. The quantum of total spectrum sold was only 1 per cent of the total spectrum on offer, while value wise it was only 12 per cent, Jain said. 

"DoT has not mandated any upfront payment. Operators can pay in installments with an 8.65 per cent interest rate for a 20-year licence. We believe Bharti Airtel can opt for the full payment option; if not, this will increase its net debt by 4.6 per cent to Rs 1.4 lakh crore. The annual installment (of Rs 670 crore) will be 1 per cent of its Ebitda," MOFSL said.

MOFSL said VIL can opt for either 20 equal installments (of Rs 350 crore each) or upfront payment of minimum two years and then installments for the remaining 18 years. This can increase its debt by 1.4 per cent to Rs 2.3 lakh crore. The annual installment (of Rs 350 crore) will be 2.7 per cent of its Ebitda, MOFSL said.

Going by its high EMD of Rs 3,000 crore, RJio was expected to be the highest bidder in the auction. 

"However, it has shown limited participation with bids worth Rs 970 crore for 1800MHz (14.4MHz in two circles). The balance EMD will be returned to RJio. It has bid for 1800MHz in order to improve 4G connectivity. RJio previously bought blocks in 700MHz, 3300MHz and 26GHz in 5G auction," MOFSL said.

At these muted participation levels, Jain of ICRA said no material adverse impact on the balance sheet of the industry is expected.

"The debt levels which stood at Rs. 6.4 lakh crore as on March 31, 2024 are expected to moderate to around Rs. 6.2-6.3 lakh crore as on March 31, 2025, despite the addition of the deferred liabilities, given the expected improvement in profit generation. Further, the total annual payments towards deferred spectrum liabilities for the industry, including this spectrum auction, will be around Rs. 17,000 crore for FY2025, followed by more than Rs. 45,000 crore annually thereafter,” he said.

Centrum Broking said it remains positive on the sector as 2G to 4G migration, increased data monetisation and expected tariff hikes would support ARPU growth for telecom service providers in near term. It expects around 15 per cent tariff hike in Q2FY24. Also 5G related capex should moderate in FY25 for Jio and Airtel.

"Bharti Airtel remains on strong footing with industry leading ARPU, growing subscriber base and excellent track record in business execution and is expected to deliver robust performance going ahead. VIL continues to lose subscribers but the recent fund raise should help it to increase its capex to augment its network infrastructure. Reliance Jio is expected to maintain the steady growth trend in subscribers and ARPU, through the increase in subscribers might moderate going ahead," it said.