How the Telecom Relief Package will Impact Stocks

Nearly a week after it was originally scheduled to be announced, the government put out its Telecom Relief package. Here are some of the highlights of the package.

1)  The government has offered a 4-year moratorium to telecom companies for their past dues of AGR charges and spectrum usage charges. However, such moratorium will entail interest at 2% above marginal cost of funds.

2)  Prospectively, the government has agreed to rationalize spectrum usage charges rates and also assured that AGR charges will exempt non-telecom income. That had been the bone of contention between the government and the telcos.

3)  The government has allowed 100% FDI in telecom through the automatic route against the 49% existing limit. This will be a boost for the shift from 2G to 4G and also in creating the ecosystem for 5G. It will also entice foreign investments.

4)  Above all, the package assures allotment of spectrum for a period of 30 years against just 20 years currently. The telecoms can also surrender spectrum after 10 years by paying a surrender fee and this will reduce the burden of paying SUC for idle spectrum.

Read: Telecom Relief Package - Celebration for Telecom companies

How will it impact telecom companies and banks?

The impact will vary depending on the stakes involved.

Vodafone Idea will be the company to get the immediate relief as it will not get 4 years moratorium to pay the AGR and SUC dues. This takes care of their immediate solvency problem. Also, if performance improves, they can convert loans into equity.

For Reliance Jio, the moratorium may not be too significant. However, Bharti has fairly large dues to the government. It is not clear whether paying 2% above the marginal cost of funds will make business sense to Bharti. But Reliance Jio and Bharti will gain from FDI, lower spectrum fees, spectrum surrender etc.

Let us turn to banks. SBI has an exposure of Rs.11,000 crore, but it is not too big compared to their total loan book. For IDFC Bank, the loan exposure is just Rs.2,100 crore but it is 2.9% of loan book. They donate have to worry about sticky assets for now.

Yes Bank has an exposure of Rs.4,000 crore and IndusInd Bank Rs.3,000 crore. IndusInd is most likely to gain from this telecom relief policy and that is evident in the recent price moves.