BSNL, MTNL clinch Rs 15,000-cr sovereign guarantee; DEA sets stiff riders

Almost 10 months after Rs 15,000-crore sovereign guarantee was announced as part of their revival package, Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL) have got an approval for the same from the Department of Economic Affairs (DEA) in the finance ministry. The DEA, however, has set stiff riders.

For BSNL to be eligible for guarantee of Rs 8,500 crore, and MTNL to be eligible for guarantee of Rs 6,500 crore, the state-run telcos will have to pay a 1 per cent fee each. It has also been indicated that the guarantee will cover only the principal amount and normal interest.  

Under the terms, the rate of guarantee fee will be applied on the amount outstanding at the beginning of the guarantee year. If the guarantee fee is not paid on the due date, fee will be charged at double the normal rate for the period of default.

The guarantee is also non-transferable and will cease to exist in case the ownership of the entity is transferred from the Government of India unless it is reconfirmed by the DEA for a prospective new owner.

The DEA has also made it clear that the Department of Telecommunications (DoT) will review proper utilisation of guaranteed funds and will review the guarantees annually to ensure there is no risk of default in repayment of loans together with interest thereon as well as guarantee fee payable to the government. It has also said the DoT would get into a back-to-back agreement with firms on the terms and conditions of the guarantee and guarantee fee.

In case of default, the lending agency shall invoke the guarantee within 60 days of the default. In case it does not, the guarantee will cease to exist for the portion of the tranche for which it had been invoked.  

The firms had asked for sovereign guarantees as part of their debt rejig plan and to meet capex requirement, especially for the launch of 4G services.  

Just a week ago, BSNL got approval for increasing borrowing limit from Rs 31,213 crore to Rs 39,713 crore. That, too, was granted with conditions. The firm was asked to improve its FY21 revenues so that it is able to meet expenditure, including capex, from its internal accruals, and repay its loans in time.

The firm, which had a 10.32 per cent share of the Indian mobile market as of February, faced a setback when it had to cancel its 4G tender because of allegations from home-grown telecom equipment companies that the tender had kept them out in the cold and was against government’s public procurement policy.

The matter was then discussed in NITI Aayog, which recommended BSNL to go in for an indigenously designed, developed and manufactured solution for its 4G network. However, BSNL Chairman P K Purwar made it clear that on the basis of responses of home-grown companies, it was apparent the products needed development, and his company did not have the money for experimentation.