Hughes Network Systems (HNS) and the Ispat group _ promoters of Hughes Ispat, the Maharashtra basic telecom licensee _ will approach Multilateral Investment Guarantee Agency (MIGA, the guarantee arm of the World Bank) to raise guarantees for its project debt of about $650 million (Rs 2,800 crore).
This follows refusal by US Export-Import Bank to guarantee vendor credit being arranged by Hughes Electronics, NEC and Altel Corp, after the US government imposed economic sanctions as a reaction to India's May nuclear tests. Company officials said they expected the financing to go through early next year.
The Hughes Ispat project is expected to cost between $1 billion and $1.2 billion (between Rs 4,300 crore and Rs 5,160 crore) over the initial three years of the project. The company is currently capitalised at $180 million (Rs 775 crore) with another $70 million (Rs 300 crore) extended in short-term loans by equipment vendors.
The peak equity requirement of $330 million (Rs 1,420 crore) is expected to be pumped in by the third year. The peak equity requirement of a project represents the maximum equity needed to fund a project and, usually, is to be met in the initial years when revenues from the project are low and losses are high. After that, when the revenues start accruing to the project, the cash flows take care of the losses and expenses.
By the end of the third year, Hughes Ispat hopes to have a capacity between 500,000 and 600,000 lines. By the end of the 15-year licence period, it is projecting a capacity of 3.5 million lines.
Hughes Ispat is scheduled to commence services in the state on October 30. In doing so, it will become the second basic telecom licensee, after Bharti Telenet in Madhya Pradesh, to start offering services in the country.
Bharti Telenet started services on June 4 this year. The company is a joint venture between the Delhi-based Bharti group of companies and STET of Italy. Four other companies _ Reliance Telecom in Gujarat, Tata Teleservices (Andhra Pradesh), Essar Commvision (Punjab) and Telelink Networks (Rajasthan) _ have signed licence agreeements, but are yet to start services.
Tata Teleservices and Reliance Telecom hope to start services early next year, although the latter has not finalised an equipment vendor for its network in Gujarat. Essar Commvision is also yet to finalise an equipment vendor for its telecom operating licence in Punjab.
On September 30, HIL signed the licence and interconnect agreements with the department of telecommunications (DoT) and paid the first instalment of licence fees amounting to Rs 397.50 crore. It has, however, not signed the pacts for Karnataka, the second circle it holds a letter of intent in. It has committed to pay Rs 13,909 crore in licence fees to the government over 15 years.
