The Moody's downgrade of its India country rating is likely to hit capital-intensive cellular and basic telecom projects hard. Most of the projects which have not gone into financial closure yet will find their domestic interest costs 50-150 basis points more than what they had budgetted for, telecom experts said here.
Among the companies likely to be hit are Aircell Digilink, JT Mobiles, BPL-US West Communications, Fascel Ltd, Modicom Networks and Koshika Telecom.
These cellular companies had plans to source debt from financial institutions or syndicate it from banks over the next few months.
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Interest costs are between 15 and 20 per cent for telecom projects depending on the project viability, promoters and whether the loans are recourse or non-recourse. Explained a telecom CFO: "In the current scenario, even a per cent increase in interest costs can be killing. For a project with debt requirement of, say, Rs 1,000 crore, the impact of the sanctions and rating downgrade would result in an increase of Rs 10 crore."
Coming as it does upon the huge cash losses (Rs 400 crore a month) that the companies are recording, the hardening of interest rates are likely to be difficult to bear.
Coupon rates on foreign debt are expected to harden after the Moody's downgrade. Also, Indian lenders are likely to follow suit as borrowers, scared off from overseas markets by a hike in interest costs and a falling rupee, flock to them.
For instance, faced with a rapidly depreciating rupee, Aircell Digilink and parent company, Sterling Cellular, wants to pick up some Rs 1,000 crore from the domestic markets. However, the savings the company hoped to make by not having to take a forward cover is now likely to be negated by hardening rates.
Except for three operators in the circles _ Escotel Cellular, Birla-AT&T and Tata Communications _ and those in the metros, none of the other operators have tied up sources of long-term finance. They are estimated to require some Rs 14,700 crore in debt funding over 10 years.
The scenario for basic telecom operators is even worse: five operators (not inclusive of the recently-signed licence of Telelink Networks project in Rajasthan) require about Rs 17,500 crore over 15 years.
Since the licence fees are colossal, lenders are likely to levy high rates unless there are sponsor guarantees to back the loans.
Three equipment supply deals involving US telecom vendors _ Hughes Electronics to Hughes Ispat, Lucent Technologies to Tata Teleservices in Andhra Pradesh and Qualcomm to Essar Commvision in Punjab _ are already under pressure following a US Exim freeze on loans and guarantees and the Moody's downgrade is not going to help them.