How Tulip Telecom is going to meet its FCCB repayment obligations, wonders the rating agency, Fitch. Downgrading Tulip to ‘rating watch negative’, Fitch notes that there is a gap between the telecom company’s dues and the arrangements it has made to pay them.

Tulip Telecom needs to payback $ 145 million to its bondholders on August 26. The company has so far arranged for $ 72 million and has received firm commitments of $ 50 million towards subscription of a fresh issue of foreign currency convertible bonds.

How will the rest of the dues be met? “The downgrade reflects Tulip’s inability to tie-up adequate funds for redeeming its FCCBs,” says Fitch. The rating agency is also concerned over the “significant increase” in Tulip’s borrowing, its “subdued” revenue growth and the growing competition in the ‘corporate date connectivity’ industry.

Telecom operators facing a maturing voice market would most likely start focussing on the broadband market, including corporate data connectivity. Furthermore, Tulip also faces regulatory challenges in the form of a possibility of imposition of license fees on its unlicensed 3.3 Ghz spectrum and revenue sharing of its internet service provider business. “The company may also need to raise more debt to fund its capex plans,” says the rating agency.

For the April-June quarter of 2011-12 (Tulip has extended the year up to September 2012), the company reported revenues of Rs 716 crore, and net profit of Rs 118 crore—an increase of 46 per cent over the corresponding quarter of 2011—but this net profit included a one-time income of Rs 61.60 crore that came from divesting its 13 per cent stake in a joint venture with Qualcomm.

On the BSE today, the Tulip Telecom share, of face value of Rs 2, closed at Rs 105.25, which was Rs 2.35 higher than the previous close.

>ramesh.m@thehindu.co.in

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