The finance ministry has sought the Reserve Bank of India’s (RBI’s) comments on a demand from mobile operators for a one-time waiver of restrictions in raising funds via external commercial borrowings (ECBs) in order to pay for third generation (3G) mobile licenses, which the government proposes to offer through auctions later this year.
Telecom companies say each 3G licence may go for between Rs 6,000 crore to Rs 8,000 crore ($1.3-1.7 billion).
Current ECB guidelines permit companies to raise $100 million (approximately Rs 4,600 crore) for capital expenditure in foreign currency.
The companies have also asked permission to raise ECBs from foreign shareholders even if they hold only five per cent equity stake.
Current ECB guidelines stipulate that foreign equity holders who lend money should have a minimum 25 per cent stake. Also, the amount of borrowing from such an equity shareholder cannot be more than four times its direct equity holding.
The Cellular Operators Association of India and the Association of Unified Telecom Service Providers of India in a recent joint letter to then finance secretary Duvvuri Subbarao, who is now governor of the RBI, asked for access to funds at affordable rates.
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The letter said restricting operators to raising capital from the domestic markets will have two consequences. First, operators will have a much higher financing cost and will be at a significant disadvantage to global participants in the 3G auction likely this December. The interest rate differential between India and developed markets, coupled with favourable exchange rate enables foreign companies to raise money overseas at cheaper cost compared to Indian companies borrowing locally at around 12.5-13 per cent.
This will reduce the level of competition in the auction, operators claim. Second, with higher costs and reduced competition, “domestic companies will be able to invest far less in 3G services and infrastructure”. The financial meltdown across the globe has made it more difficult to woo private equity funds or even other telecom companies to make large investments.
This is already reflected in significant differences between foreign telecom firms and the over seven new players who have recently received telecom licences to start 2G (second generation) mobile services.
Global telecom companies value an all-India licence at $1 billion to $1.2 billion, as against Indian licencees’ expectations of $2 billion. Apart from the incumbents, six or seven more operators are also expected to bid for the 3G licenses that will usher in high-speed internet downloads on mobile networks.
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