Sibal meets PM, FM on loans to telcos

With the 2G spectrum allocation controversy virtually blocking flow of funds to the telecom companies, Communications and IT Minister Kapil Sibal on Monday met Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee to seek their intervention for the loans to telecom companies.

“Yes, we met in the morning,” Sibal said when asked about his meeting. He, however, declined to give details. According to people close to the development, the issue of freezing of loans to the telecom companies by banks and other financial institutions was discussed. Banks and other institutions have been wary of giving loans to telecom companies due to the ongoing spectrum controversy and investigation by the Central Bureau of Investigation (CBI) and other agencies.

For instance, Norway’s telecom firm Telenor, which has a majority stake in Uninor, a joint venture between Telenor and India’s Unitech, has also decided to go for a rights issue, since it has been unable to secure loans for its expansion as the company has figured in the ongoing CBI enquiry into the 2G spectrum case. However, the move has been challenged by the Unitech Group.

Sibal had earlier a written a letter to the PM, asking him to call a meeting with Mukherjee. He had said many companies borrowed heavily to pay for 3G licences last year. These companies are now facing difficulties in raising resources, upsetting the calculations they had made while bidding aggressively for licences.

The situation, if not remedied swiftly, could embroil the sector in a financial and legal quagmire, he added. It is estimated that 60-70 per cent of the Rs 1,00,000 crore that operators paid for 3G and broadband wireless access spectrum came as loans from banks and financial institutions. The companies also put in another Rs 30,000 crore to roll out services. A substantial part of this, too, came from banks and financial institutions. This does not include loans taken for operating expenses.

As many banks such as SBI with large exposure to the telecom sector are coming under the eye of the investigating agencies, many are reluctant to lend more to companies in the sector. CBI’s preliminary inquiry into the term loans has also been extended to companies that successfully bid for 2G telecom licences in 2008.