Hughes Ispat Ltd (HIL) is exploring possibilities of tapping overseas private insurance markets for funding the $450 million debt component of its Rs 6000-crore telecommunications project in Maharashtra.
This follows the withdrawal of the project's original overseas financiers, which included US Exim Bank, due to the imposition of sanctions by the United States, Vivek Sett, director-finance, Ispat Industries, told Business Standard.
HIL is a basic telephony joint venture between Ispat Industries Ltd, Hughes Electronics Corporation, US, and Alltel Corporation, US.
More From This Section
"The foreign loan component for the telecom project has to be tied up in the US because, the equipment for the project is being sourced from that country through our joint venture partners, Hughes and Alltel. In the event of the sanctions continuing, we would have to look for alternative sources for funds and serious thought is being given to the private insurance market in the United States," Sett explained.
The Ispat group has a total foreign currency loan of about $700 million lined up for projects in power, telecommunications and coal mining.
However, telecom has been the only project to be really hit so far since other projects like the Rs 4,636-crore Bhadrawati power project can source their foreign loan component from the European market.
Ispat had anticipated problems for the Bhadrawati project as well when Moody's Investor Service downgraded India's credit rating. "Fortunately, the European export agencies have not increased their premiums yet; so there should not be a problem since the equipment for the project is being sourced from the UK and France," said Sett. The foreign loan component of the Bhadrawati project is Rs 2,520 crore.
HIL was awarded the licence for providing basic telephony services in Maharashtra, including the Goa circle, in September 1997. The company has been funded with an initial capital of Rs 415 crore by way of advances against equity.
For such an initial funding, a licence fee payment of Rs 397 crore was made to the Department of Telecommunications (DoT).
During the last financial year, additional equity funding of $30 million has been committed by shareholders. Ispat Industries has made its 10 per cent contribution of Rs 54 crore towards the equity. According to the equity pattern in Hughes Ispat, the Mittals - the promoters of Ispat Industries -- hold 51 per cent while the foreign joint venture partners hold the remaining 49 per cent.
Under the licence, HIL is committed to roll out 10,000 lines in its first year of operation, 2.5 lakh lines in the second year and 6 lakh lines in the third year. The company has also indicated that it will initially deploy facilities in Navi Mumbai and Pune. Civil work in these areas has already commenced and the company anticipates that it will be able to initiate services later this year.