Cash-strapped telecom companies bidding for 2G spectrum next week will be able to refinance funds raised from the domestic market through external commercial borrowings.
The Finance Ministry has relaxed norms for external commercial borrowings (ECB) to enable auction winners pay for spectrum upfront. The auction starts on November 12 with a minimum price of Rs 14,000 crore for 5 Mhz spectrum across the country.
The move will help operator companies participating in the auction raise cheaper funds to pay for the spectrum.
The Ministry is also hoping this will prompt the operators to pay the entire bid amount upfront instead of paying in instalments.
The Ministry has also said that successful bidders can make use of short-term foreign currency loans in the nature of bridge finance under the ‘automatic route’ for making upfront payment for spectrum and replace the funds with long-term ECB under the ‘automatic route’.
Successful bidders will also be allowed to make use of ECBs from their ultimate parent company without any maximum ECB liability-equity ratio under the ‘automatic route’ subject to certain conditions. The conditions will be detailed in a circular to be issued by the Reserve Bank of India, the Ministry said.
FinMin target
The Finance Ministry has set a target of collecting Rs 40,000 crore by selling spectrum during the current fiscal. But with only five players in the fray, the actual collection could be much lower. In addition, the option to pay the bid amount in instalments could mean the exchequer will get only 30 per cent of the total bid amount this year. “When we have the option of paying in instalments, the option to raise money through ECB may not be required,” said an industry representative. If all the winning operators decide to pay in instalments then the Government could end up with less than Rs 6,000 crore this fiscal. Hence, the Finance Ministry is hoping the operators will opt to pay via the ECB route as that works out cheaper. “If the operators opt for staggered payment, they will have to pay interest at the rate of 9.75 per cent, which is quiet high.
Now, economic sense dictates that the operators raise the money through external commercial borrowing (where the rate is less than 9.75 per cent and pay entire money upfront).”