Cellular telecom service companies _ unenthused with the extension of the licence period from ten to 15 years _ want banks and financial institutions to ease the debt-equity ratio from 1.5:1 to 4:1, in line with a similar guideline for lending to power projects.
They also want lenders to accept the licence as an asset, while insisting on asset covers for the debt extended to the projects. The asset cover of a project is the number of times the asset value of a project covers the total debt borrowed.
According to Umang Das, director (telecom), Modicorp Pvt Ltd, the holding company of the B K Modi group, the government will have to address these issues since the extension of the licence period by itself is not a major concession for the cellular industry.
Das feels that banks and FIs should treat telecom like any other infrastructure sector. "If in power, the norm is 4:1 (debt equity ratio) why shouldn't it be so in telecom?" he asked. Das represents Modicom Networks, which has withdrawn from the Cellular Operators Association of India following the ouster of Modi as chairman of the body.
Domestic lenders have been wary of extending more than 1.5 times equity as debt to telecom projects, given the unviability of the projects. They have also been reluctant to accept licences of the companies as assets while calculating asset cover for the projects.
Typically, lenders have been asking for 1.5-2 times asset cover, which telecom companies feel is an unviable proposition. "The licence fees alone is 40-50 per cent of the project cost," Das pointed out. Given this high figure, he said, it will be difficult to meet the asset cover requirements of the lenders. When the government announced last week to extend the licence period of cellular companies, an immediate benefit of the decision was seen to be that banks and FIs would be more comfortable lending to the projects. Typically, the debt extended to operators is of a seven-year tenure, which would have left lenders just a three-year comfort period to reschedule principal and interest repayment, if the need to do so arose.
However, with a five-year extension, the institutions will be more comforable lending to the projects. "Since there are only seven-eight years left in the life of the projects, they (banks and institutions) have not been lending because they have no room for rescheduling (the loan repayment). Now, with a longer project tenure, they will have at least five more years as a comfort period," a cellular source said.
Although not covered by the decision, the basic telecom industry is also expected to benefit later. The companies have asked for an extension of the licence period from 15 years to 25 years, a proposal which has not yet been taken up by the government. However, "with the cellular decision, our case gets stronger", a basic telecom licensee promoter said.
