Telcos seek ECB route for funding 3G bid

GSM and CDMA players across the country have written to the finance ministry seeking a one-off in-principle approval to raise money through external commercial borrowings (ECB) to bid for 3G spectrum.

Telecom players say that raising finances to bid for 3G spectrum at high interest rates from the domestic financial institutions could lead to serious questions of viability. Apart from the incumbents, six-seven more operators are also expected to bid for the 3G spectrum licence.

The government expects to raise over Rs 40,000 crore by auctioning five licences for 3G across the country.

The current guidelines on ECBs issued by the Reserve Bank of India (RBI) permit raising only $100 million for capital expenditure in foreign currency. They cannot be raised to fund the cost of 3G spectrum that comes for auctioning by the end of this year.

The telecom players have also asked for a further relaxation of the rules so that telecom companies can repay ECBs raised for funding 3G auction.

The companies have also asked permission for raising ECB from foreign shareholders even they hold only five per cent equity stake in the company.

However, according to the current ECB guidelines, foreign equity holders who provide borrowings should have a minimum of 25 per cent stake in the company. Also, the amount of borrowing from such an equity shareholder cannot be more than four times of its direct equity holding.

The Cellular Operators Association of India (COAI) and the Association of Unified Telecom Service Providers of India (AUSPI) in their joint letter to the finance secretary D Subbarao asked for funds at an affordable rates.

The letter says that “restricting operators to raise capital from the domestic markets will have two consequences, firstly, operators will have much higher financing cost and will be at a significant disadvantage to global participants. This will reduce the level of competition in the auction. Secondly, with higher costs and reduced competition, they will be able to invest far less in 3G services and infrastructure, thus denying the full benefits of 3G broadband.”