Tata Teleservices lenders to recast loans, take haircut

Bankers said many telecom sector entities were facing financial stress

Lenders to debt-ridden Tata Teleservices are exploring a loan-restructuring package with some haircut in order to avoid the account being classified as a non-performing asset. 

Bankers said many telecom sector entities, including two companies of the Tata group, were facing financial stress and since options were limited, the lenders would look for a loan recast. As part of the recast package, banks may have to forgo some income but it is too early to estimate the haircut lenders are willing to take. The Tata group operates its mobile telecommunications business through Tata Teleservices Ltd (TTSL) and TTSL's associate company, Tata Teleservices (Maharashtra) Limited (TTML).

As on March 31, 2017, the combined debt of TTSL and TTML was Rs 34,089 crore, excluding deferred payment liabilities to the government for spectrum, according to a CRISIL report.

A senior public sector bank executive said the Tata group’s top executives had met banks to find a solution. They have indicated financial support to resolve the debt burden. The discussions are for a comprehensive plan, including repayment plan, an option to rope in a new investor and sale of some assets.

Group holding company Tata Sons has approved an investment of Rs 14,000 crore in TTSL, of which about Rs 12,000 crore is to be infused in 2017-18. The investment will be either in the form of equity or compulsory convertible preference shares.

The proceeds will be used for debt repayment and the corresponding interest cost will also decline, according to a CRISIL report in July 2017.

Another senior banker said this was a special mention account (SMA) where repayments were due between 1 and 60 days. The dues had never crossed the threshold of 90 days to term the borrower account as a non-performing asset.

The restructuring covers some payments by the Tata group and waiver of payments that the lenders are able to absorb. 

Referring to the TTSL account status at the end of September, one public sector bank executive said, “The headache for the quarter ending in September is behind us. In this case, the aim is to find a solution before the close of the December quarter so that we do not have to face a situation of making a huge provision for a bad loan.”

In April this year, the Reserve Bank of India (RBI) had asked banks to set aside higher provisioning for the telecom sector, starting from the current quarter.

The interest coverage ratio of the telecom sector now was less than one, the RBI said. 

A ratio of less than one indicates that companies are not able to service their full interest from their operating profit, a clear indication of high stress. In addition, the companies were also reporting “stressed financial conditions,” the RBI noted.

The telecom industry has outstanding debts running into the lakhs of crores of rupees, incurred mainly on account of payments for spectrum, spectrum usage charges and other levies. 

The telecom industry associations and players have been in discussions with the government about the sector’s financial situation.

In its various publications, like the Financial Stability Report (FSR), the RBI has said five sectors — infrastructure, steel, textiles, power and telecom — have contributed to more than 60 per cent of bank stress.

Steel, power, transport and other infrastructure sectors have created a huge problem of non-performing assets for banks.