Telecom funding by FI's on the rise - Views on News from Equitymaster

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Telecom funding by FI's on the rise

Mar 14, 2000

The telecom sector has got a big impetus as financial institutions (FIs) are chalking out investments towards this sector. ICICI Ltd. is in the process of raising Rs 20 bn from domestic banks and institutions including itself to fund telecom projects. ICICI is India's second largest institution, with a major presence in almost all areas of finance. The company has an asset base of Rs 585 bn.

ICICI plans to raise Rs 10 bn in the domestic market for Hughes Ispat in the next couple of months and also plans to raise a similar amount for financing BPL Cellular's operations. Besides this ICICI has already lent Rs 3.8 bn to Hughes Ispat via a short term loan. Industrial Development Bank of India (IDBI) has also decided to lend Rs 2.5 bn to Fascel, the Gujarat cellular licensee. It is also in the process of raising Rs 6 bn more for Fascel from other banks and financial institutions.

Financial institutions are now more geared up to lend to the telecom sector than they were earlier. The main reasons for this are because of changes made to the telecom policy. Now telecom licensees do not have pay a fixed amount for their operations to Department of Telecommunications. However they are now expected to pay a fee as a percentage of their turnover. This makes them more viable as they pay according to how much they earn as against a fixed amount.

Telecom projects look more viable now with the announcement of the migration package in the new telecom policy. Also as this is a high growth industry, earnings opportunities from this sector look very attractive. Also in the age of convergence once the infrastructure is created it can be used for multiple functions creating higher avenues of growth.

Telecom operators have suffered in the past due to the stringent telecom policy. As a result FIs stayed away from funding the telecom operators as these companies lacked financial viability. Hence most of these telecom operators do not have debt on their books and have been funding their operations by equity. Now with the stance of FIs turning favourable towards the telecom industry they can fund and expand their operations with debt.

Market View:
ICICI has been rated a 'Buy' by many analysts due to its restructuring, its high spends on technology and manpower which has helped it retain quality manpower and its aggressive retail expansion.

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