Private equity (PE) players are likely to be 'overcautious' about telecom exposure, in the wake of cancellation of 2G licences by the Supreme Court yesterday, according to industry experts.
"PE firms will take a very cautious approach before investing in telecom sector after the Supreme Court verdict to cancel 122 licences given out after January, 2008 has pushed the sector into some kind of uncertainty," a top official from a PE firm told PTI, who wished not to be named.
He also pointed out that it may happen that like banks, many PEs may also develop a risk aversion to this sector and stay away.
The Supreme Court had yesterday cancelled 122 unified access service licences issued since January 2008 and directed the Telecom Regulatory Authority to make fresh guidelines for the spectrum auction in the future.
With this verdict, 2G licences of Uninor, a JV between realty major Unitech and Norwegian major Telenor, Sistema-Shyam, which operates under the MTS brand name, STel, Videocon, Idea, Tata Tele, Loop and Etisalat DB have been scrapped.
While these eight companies have invested around Rs 35,000-40,000 crore, major chunk of it have come from Uninor and MTS, as these companies are fully operational.
"Future investment by PEs will depend on the approach taken up by these telcos. As huge investments are on stake, it's too early to predict the final outcome of the case.
"Questions like, will some players shut shop; what is the final outcome of the story, are to be answered before a PE invests in a telco in the near future," another top official from a foreign fund house said.
PE investments in telecom space have seen a downward trend in the last five years. While the sector witnessed 13 deals worth $3.5 billion in 2007, it had fallen to six deals worth just $50 million in 2011. Interestingly, most of the deals in the recent past were in the value added space.
However, experts also say current investments of Temasek Holdings of Singapore in Bharti Airtel and Providence Equity Partners in Idea Cellular will not be affected.
