Local markets to feel pressure as telecom companies look to access funds.
Getting big business from telecom companies to fund 3G spectrum fee and meet the infrastructure roll-out costs is keeping bankers busy as they set about arranging funds at short notice.
While bankers said getting funds might not be an issue, they added it could cause temporary liquidity pressures given that Indian companies are also due to pay the first instalment of advance tax in the middle of June.
“The twin pressures could result in a rise in short-term interest rates,” said a senior executive at a public sector bank. Call rates have stayed below the four per cent mark for several weeks given the surplus cash that banks have at their disposal. On Monday they parked Rs 43,810 crore through the Reserve Bank of India’s reverse repo window.
Executives on the wholesale banking side as well as money market dealers said it is difficult to estimate amounts that telecom players would have to pay, but aggressive bidding funding needs could be as high as Rs 70,000 crore.
Already, the total bid amount is in excess of Rs 65,000 crore and the process that started 31 days ago is not over yet. According to the rules, companies have to pay the spectrum fee within 15 days.
If the bidding process is completed over the next few days, the system could face temporary mismatch in June as money goes out of the system for payment of taxes.
While companies tied up loans of around Rs 40,000 crore before the auction process started, the bidding has seen the estimates go awry.
Large telecom players have tied up credit lines which they would activate once there is clarity on the amounts they have to cough up for the spectrum fee, a senior banker said.
Banking sources said State Bank of India and IDBI Bank were the major financiers. While the telecom companies are looking to tap the external commercial borrowing (ECB) window to access funds, to meet their immediate payment needs they will have to depend on local sources, the bankers said. The domestic debt will then be substituted with ECB.
Apart from ECB, the other source of funding, especially for infrastructure roll-out, will be credit from equipment suppliers.
Bankers said that according to available indication, at the first instance, some players may raise short term funds — bridge loans, issue commercial paper and debentures — as they have to pay the spectrum fees immediately. They would simultaneously negotiate for long-term funding (above five years) which would replace the short-term credit.
Bank executives said they will not face major problems in arranging the funds. Apart from the surplus funds placed with the RBI, banks also have large investments into debt schemes of mutual funds which could be liquidated to provide money to telecom firms. On April 23, bank investment in MF schemes were estimated at Rs 1,06,285 crore.
“The credit would earn us better yield than returns from MF schemes. So, we can withdraw funds to make it available for credit disbursals,” said a top executive of a public sector bank.
The head of syndication and wholesale banking with private bank said when these telecom companies visit the market, the chunk may be large and absorption of paper will not be easy.
He pegged the funding upper limit to be Rs 50,000 crore which along with tax outgo of Rs 15,000-17,000 crore could push the short interest rates in the system in June.
Short-term rates like one-year overnight indexed swaps (OIS) and commercial papers and certificate of deposits may rise 20-50 basis points during the crunch period, while overnight rates could jump 200 basis points to the repo rate of 5.75 per cent, bankers said.
With many players expected to tap the market, there will be scope for banks to “pick and choose” based on the comfort and funding requirement, said a treasury official with a public sector bank.
The cost of funds for each operator is, of course, going to vary substantially. “It will depend on the rating of each borrower,” said a banker. But that’s a different story altogether.
