After a runaway growth, scandals and scams, here comes the pain of over-leveraging in the Indian telecom industry. The country's biggest independent telecom infrastructure provider, Manoj Tirodkar of GTL Group, has become the first person from the telecom sector to resort to corporate debt restructuring, or CDR. The reason: his group's revenues are insufficient to meet the interest obligations. In the last one year, the telecom logjam at the centre, along with over-leveraging and shrinking revenues, have taken a heavy toll on the group.
Sounds familiar? Well, remember early 2000 when telecom companies, especially in the US, filed for Chapter 11 Bankruptcy. Over-leveraged Worldcom, which was also mired in an accounting scandal, had the biggest filing in its name. Globally, the first to crack were the telecom equipment suppliers like Lucent Technologies and Nortel Networks followed by carriers like Worldcom, Global Crossing and Qwest Communications. (Read: The year of the telecom meltdown 2002 )
Now the skeletons seem to falling out of the Indian telecom industry's cupboard. Last month, Sunil Bharti Mittal's Airtel had dialled in for an internal restructuring, which resulted in chopping of some flab. This news went unnoticed. There is no cause of alarm, though, for the service providers. But the troubles of telecom ancillary player or equipment suppliers like Tirodkar are real and bigger.
This 46-year-old could very well be the first victim of the trouble in the telecom industry, including a hardened interest rate environment. He is sitting on a debt of over $3 billion in its two telecom units - GTL and GTL Infrastructure. Tirodkar has no option but to plead for a debt restructuring as the annual revenues of his two units are less than half a billion dollars. His calculation for a pick up in revenues went for a toss after the telecom scam and also changes in the interest rate environment. (Read: The roller-coaster man )
There is also been no support from the stock market, where the prices of his group's stocks have received a battering over the last few months. The market value of GTL has eroded from Rs 4,130 crore a year ago to Rs 855 crore. GTL Infra has seen its market value fall from Rs 4,400 crore to Rs 1,436 crore in the same period. The low valuation in the market has shut all doors for any equity stake sale by the promoter to generate additional cash. And, there is now a potential threat of takeover as both the companies are now available at a rock bottom prices.
In such a scenario, a CDR could provide an interim relief by way of a moratorium in interest rates or conversion of debt into equity for lender bankers. In the past, commodity player Essar and textile major Arvind have come out successfully from a CDR net. Today, both these companies are doing well.
The new telecom players like Swan Telecom (Etisalat DB) and Unitech Wireless are neck deep in litigations and biggies like Reliance and Tata are also fighting their way out of the 2G controversies. There seems to be no visibility of those good old days coming back soon.
It's anybody's guess whether this roller coaster man will survive the current tsunami?