Telcos rush to repay spectrum liabilities

The instalments were due in FY27 and FY28. “These liabilities carried an interest rate of 10% and have been paid off through a combination of strong free cash generated by the business, equity proceeds and significantly lower cost debt of similar tenor,” the telco said on Friday.

Over the past four months, Bharti Airtel paid ₹24,334 crore of its deferred spectrum liabilities ahead of scheduled maturities.

The prepayments have come as a bonanza for the government, which has fallen far short of its disinvestment target as choppy markets forced it to delay the initial public offering of state-run Life Insurance Corp. of India. The government has slashed its disinvestment goal for this fiscal to ₹78,000 crore from ₹1.75 trillion but is expected to still miss the target by a wide margin. The prepayments will add to the non-tax revenue of the government, which includes receipts from spectrum auctions as well.

Bharti Airtel had earlier prepaid ₹15,519 crore due to the government for the spectrum it acquired in the 2014 auctions. It is not just Bharti Airtel. Bigger rival Reliance Jio Infocomm Ltd prepaid ₹41,583 crore to the telecom department in the past six months, clearing dues for all spectrum bought in auctions before March last year.

Companies such as Airtel and Reliance Jio are using cheap finance to clear high-cost liabilities and refinance loans. Many companies are also locking in low-cost funds in anticipation of interest rates going up in the coming months as global central banks tighten monetary policies.

Airtel said it continues to focus on financial flexibility via its capital structure, including optimizing the cost of financing and capitalizing on all opportunities of significant interest saves like this prepayment. These liabilities were due in annual instalments from FY27 to FY32 and carried an interest rate of 10% (the highest rate among the deferred liabilities and borrowings) and an average residual life of more than seven years. In December, the company said the prepayment would likely help save at least ₹3,400 crore in interest costs. The savings will aid the company’s capex and cash flow at a time it’s channelling investments towards expanding 4G and 5G footprints.

Airtel acquired 128.4MHz spectrum for ₹19,051 crore in 2014. In September, the government gave telcos the flexibility to prepay deferred liabilities as part of a rescue package that included a four-year moratorium, the option to convert interest on spectrum and other dues to the government into equity and reduced bank guarantees.

Meanwhile, Airtel on Friday said it will buy 4.7% stake in Indus Towers from Vodafone Group Plc at ₹187.88 per share, aggregating to ₹2,388 crore.