Airtel, Jio may use own cash reserves for 5G spectrum buys

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According to industry executives and analysts, Bharti Airtel and Reliance Jio are unlikely to use commercial banks to finance their spectrum auction purchases because the initial cost of purchasing 5G and other airwaves is likely to be less than 5,000 crores, largely because of the lenient payment terms provided by the government.  

Since the top two carriers have strong balance sheets and a war chest of funding provided by equity investors in both businesses, unlike in prior auctions, telecom operators are planning strategies for purchasing 5G airwaves in the auctions starting on July 26.  

Even if they purchase pan-Indian 5G airwaves and another spectrum, Airtel and Jio have more than enough money to pay for the spectrum they purchase this time at auctions.  

more 26 GHz band airwaves, “a company executive who requested anonymity said.  

“If telcos purchase 100MHz of spectrum across all of India in the 3300MHz band and 500MHz of spectrum across all of India in the 26GHz band, which is the least expensive band by base price, the annual pay-out for spectrum purchased in the upcoming auction would be $1200 crore for Bharti, $2400 crore for Vodafone Idea, and $1100 crore for Reliance Jio, respectively “In a recent note to clients, ICICI Securities vice president Sanjesh Jain stated that. Concerning Q4 FY22 annualized adjusted gross revenue or AGR, he said that eliminating the floor of 3 percent spectrum usage charge (SUC) will result in yearly savings of 2,100 crores for Airtel, 1,000 crores for Vodafone Idea, and 2,300 crores for Reliance Jio.  

According to Moody, Airtel would primarily use cash and operating cash flow to pay for its participation in the auction.  

The Indian Competition Commission also authorized Google’s investment of around $1 billion for a 1.28 percent interest in Airtel on Thursday.  

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“We expect Bharti to generate free cash flow post-interest of Rs. 25,100 crore / Rs. 36,800 crores i.e., 22 percent / 47 percent of its net debt in FY23/24E, respectively,” Motilal Oswal said, putting Airtel’s total expenditure in the upcoming 5G auction at Rs. 15,500-20,000 crores. Reliance Jio raised more than financing the 5G auction is not expected to be a problem thanks to the 1 trillion that Meta, Google, and other investors have invested in the past two years.  

  Even if the government has given the carrier its 5,000-crore bank guarantee back, loss-making Vodafone Idea may still need to look to banks in addition to other loan options.  

“Given the low Ebitda in FY23E, even after the tariff hikes, the much-anticipated capital raise remains crucial to provide immediate liquidity and investment in-network, “based on Motilal Oswal.  

In response to emails, Airtel, Vodafone Idea, and Jio declined to comment. 

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