Economy

Sibal seeks PM's help to get banks lend to telecom firms

Thomas K. Thomas New Delhi | Updated on March 28, 2011 Published on March 18, 2011

Communications and IT Minister, Mr Kapil Sibal

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The Communications and IT Minister, Mr Kapil Sibal, has written to the Prime Minister, Dr Manmohan Singh, seeking his intervention in getting banks to start lending again to telecom companies.

Over the past few months, both domestic and international banks have become wary of extending loans to telecom companies for fear of coming under the scanner of investigating agencies post 2G scam.

3G payments

The Telecom Minister has also urged the Prime Minister to convene a meeting with the Finance Minister to resolve the issue, which is threatening to halt telecom operators' expansion plans.

“Many of these companies have borrowed heavily to pay the 3G auction fees. They are now facing difficulty in raising resources to undertake the very business that formed the basis of valuation of spectrum.

“This situation, if not remedied swiftly, could embroil the sector in a financial and legal quagmire. Even more importantly, it would be severely detrimental to the growth of the telecom sector as a whole,” Mr Sibal wrote in his letter.

Telecom operators are finding it tough to raise fresh funds after the Supreme Court recently came down heavily on some banks for lending massive amounts to new 2G licensees by completely ignoring the risk factors.

The Central Bureau of Investigation is also looking at the loans extended to some of the new players, including Swan and Unitech Wireless.

“Reportedly, there is reluctance among bankers to finance normal business activity in the sector. The cause is stated to be fear that any transaction may attract adverse attention from some investigating agency or judicial forum in the future. Hence, the belief that safety lies in avoiding financing the sector altogether,” Mr Sibal said in his letter to the Prime Minister.

Telecom operators recently paid over Rs 1 lakh crore for buying 3G and broadband spectrum and require additional funding of $2-3 billion over the next six months for rolling out new network infrastructure. A number of operators are also looking at merger and acquisition possibilities for which money would be required.

Expansion plans hit

Mr Rajan Mathews, Director-General, Cellular Operators' Association of India, representing the GSM operators, said the lack of availability of funds is impacting operators' expansion plans.

“Over the past few months, we have seen a 20-24 per cent decline in foreign investments. Banks have also stopped lending to all operators, irrespective of whether the company is being investigated or not.

The Government should clear the air on this issue and come out with a policy that ensures availability of funds to a critical and capital intensive sector like telecom,” Mr Mathews said.

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Published on March 18, 2011
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