Cash On Call

Most of this fund-raising rush is led by the high growth projections for this sector. Says a Mumbai-based telecom analyst: "India’s telecom sector is growing at a pace second only to that of China. In five years, the roles could be reversed. Indian companies had been mostly fighting losses so far. But now, some are moving to profitability. It’s time to ramp up." Says Amit Bose, president, Tata Teleservices Ltd (TTSL): "Our estimates are that the market will go from about 35 million users today to 125 million by March 2008."

Domestic and global institutional investors have had a relatively low level of exposure to Indian telecom companies. But these dream numbers have got them interested too. And the companies, naturally, want to take advantage of this mood shift. Says Rajeev Chandrashekhar, chairman, BPL Innovision Business Group: "The telecom sector was mired in complex confusion caused by reasonably inconsistent and sometimes indefensible government policy and regulatory orders. Having said that, companies are beginning to see a clearer, albeit sometimes painful, path to profitability."

Most of the companies raising money from the market are looking at major expansions. Bottomlines have been squeezed badly in a low tariff regime coupled with a drastic fall in average revenue per user in the last few months. The only way out, the firms feel, is to have a pan-India footprint. Tata Indicom, for instance, plans to invest Rs 2,500 crore to roll out in 12 new circles and 1,000 towns (it currently operates in eight circles) by March 2005. It’s already raised Rs 1,000 crore through bonds and could be visiting the debt market again soon. Says Bose: "The Tata group has earmarked Rs 9,000 crore for its telecom business, of which 75-80 per cent will be used to augment the Indicom network."

Reliance Infocomm is readying to tap the market through both debt and equity. It wants to pump up its presence from the current 1,100 cities to 5,000 by year-end with cellular mobile as well as landline services in top cities. Early next year, it plans to launch its consumer initiative, Home Netway, with high-bandwidth "triple-play solution" of voice, data and video. While market sources say the company is looking at a debt of about Rs 5,000 crore, company officials are tightlipped about numbers. Says spokesperson Amit Khanna: "We are in a dynamic business, which is expanding rapidly. We will be raising whatever amount is required for funding this expansion."

Bharti Telecom, the country’s largest GSM cellular company (Tata Indicom and Reliance use CDMA) has already announced its ADR issue of about $700 million (Rs 3,200 crore). In April, it raised about $100 million (Rs 450 crore) through bonds in international markets. Its mega plan is to be in six new circles in the current financial year, taking its tally to 23. The first step is the rollout in UP (East) by month-end. $1 billion (Rs 4,500 crore) is what the market says Bharti’s closest GSM rival Hutch aims to raise. Of this, say sources, about $350 million (Rs 1,600 crore) could be used to feed the company’s recent acquisition of Aircel’s circles in Tamil Nadu and Chennai, and the rest for new rollouts and to replace older debts.

A few companies, though, are raising money more as financial strategy than business expansion, to use the low interest rates to refinance high-cost debt and reduce interest burden. BPL Innovision recently completed refinancing of its Rs 2,400-crore debt. Says Chandrashekhar: "We are working in the medium term on raising capital and refinancing through IPO, public bonds and debt swaps."

So too, Idea Cellular which, say sources, is planning to refinance about Rs 4,000 crore worth debt, and reduce interest costs from 11 per cent. The company’s debt increased after it recently bought Escotel for about Rs 1,150 crore. Idea is also pursuing a Rs 1,200-crore expansion plan to cover more towns and three more circles this fiscal (it operates in eight now). India has been catching up rapidly with China on telecom. With purse-strings loosening, this could be the final lap.