Ratings agencies keep close watch on telecom space

MUMBAI: Ratings agencies and analysts are keeping a close watch on the emerging situation in the telecom space post Thursday’s Supreme Court judgment cancelling 122 licenses of 11 companies . Going forward debt ratings of some of the companies affected by the order could be cut, while on the equity part, target price of some of the stocks affected by the apex court order face the axe. However, the order may lead to higher tariff for mobile customers because of lesser competition for the incumbents , most telecom analysts said.

On Friday, ratings major Crisil put Sistema Shyam Teleservices on ratings watch with negative implications, meaning the company’s ratings could be cut soon, but affirmed its ratings on Bharti Airtel, Vodafone India and its group companies, Idea Cellular , Tata Teleservices and Tata Teleservices (Maharashtra ).

“The impact on Sistema Shyam Tele is severe as its licenses have been cancelled in 21 circles, while for Tata Tele and Idea, the impact is limited , as their licenses have been cancelled in only three and nine circles, respectively ,” a Crisil release said. For Bharti, Vodafone group, and Tata Tele (Mah), the licenses remain unaffected, it further noted. Fitch had some comforting words for the banks that have exposure to telecom companies affected by the SC order.

It believes that Indian banks sector should be able to absorb the loanlosses as a result of the cancellation licenses ‘without materially impairing credit quality’ , though it expects their profits to take a hit. “Indian banks' exposure to the telecom companies that are losing 2G licenses is around 0.6% of total loans. However, around half of the exposure is in the form of financial guarantees towards future payments of license fee."