Banks seek Trai nod for spectrum mortgage

Banks are knocking on the doors of Telecom Regulatory Authority of India (Trai) for permission to use spectrum as a mortgage for fresh telecom financing.

Telecom companies are approaching banks for finance and guarantees for their spectrum purchase, but bankers say they will be cautious despite temptation to grow their advances.
Banks say feel their money would be safe only if Trai allows spectrum to be mortgaged as collateral for a loan. A considerable portion of the Rs 1.10 lakh crore that the telecom companies paid as spectrum fees for acquiring new licences and renewing old ones is likely to be raised from banks.

Arundhati Bhattacharya, chairman, State Bank of India (SBI), told dna in an interview that Indian Banks' Association (IBA) has taken up the issue with Trai.
"We are still in discussion with Trai to allow the spectrum to be mortgaged. Only the licence can be mortgaged now, not the spectrum. We have said that banks should be allowed to mortgage the spectrum, and in case there is a default, the banks should be allowed to sell spectrum to some other player with the consent of Trai. But the telecom regulator is not comfortable with it."

"Spectrum financing has to be done on the strength of the balance sheets. We have to see how comfortable we are with the kind of debt the telecom companies will take," she said.
A senior Punjab National Bank official also confirmed that the IBA had taken the issue with the Trai for allowing spectrum as collateral when banks are financing the spectrum purchase. "It needs to be the primary security as we are financing the purchase of the spectrum", he said.

Till now, the government has not been comfortable in allowing banks to mortgage spectrum to lend to telcos as they believe airwaves are the property of state.
Rajan Mathews, director general of Cellular Operators Association of India (COAI), said the telcos were awaiting the modification of the current tripartite agreement (TPA) between lenders, telecom operators and the government that was framed in 1998.

The COAI chief said with the change in the licensing rules that has unbundled licences from spectrum, there is a need to come out with a new TPA that would look into issues of what would happen to the spectrum in case of a default by the borrower.
An industry source, who did not want to be named, said while operators have been lobbying hard with the government for amending the TPA to include spectrum as collateral, they will not have problem in funding their cost of spectrum through various financing sources. The other means of financing spectrum purchases, according to sources, would be by diluting stakes and monetising assets.

He said Vodafone India is most likely to get funds from its parent company while Bharti and Idea would look at funding their spectrum acquisition through internal accruals and bank loans. For instance, Bharti had cash and cash equivalent of Rs 2,537.8 crore as on December 31, 2014 on its books. It could use this to meet a part of its spectrum expenses.
He said the government had also provided very easy payment terms. In the Notice Inviting Application (NIA) for spectrum auction, the government said that the upfront payment, which is 33% of the total cost for 1800 mega Hertz (MHz) and 25% for 900 MHz and 800 MHz, had to be paid within 10 days of declaration of the successful bidders. After that, the telcos have also been offered two years of moratorium – holiday-period to make it easy for them to make the payment. The rest of the payment has been allowed to be made in 10 equal annual installments.

"It would not be difficult for the telecom service providers to raise money to pay these installments to the government. Going forward, their incomes are only likely to go up with growth in data services. This will make paying the later installments easier," said the telecom executive.
The government raised a record Rs 1.10 lakh crore from the sale of mobile phone airwaves in its latest telecom auctions in March, up from Rs 1.06 lakh crore it raised in 2010.

Telecom operators in the country had a total debt of Rs 242,896 crore on their books in 2013-14. Of this, the share of public sector firms MTNL and BSNL stood at Rs 18,579 crore, or 7.6%, minister of communications and IT Ravi Shankar Prasad said in a written reply to the Lok Sabha last month.
Mathews said the licence was not worth much and its value diminished with each passing year as it came closer to its expiry. The experience of telecom licences being cancelled by the Supreme Court in 2012 that had led to many operators closing or scaling down their operators has irrevocably eroded their value.

"We (DoT, lenders and telcos) are in the process of working out modalities of how should the spectrum be treated in the event of a default. Should it go back to the DoT or the lender?" he said.
Now, with the completion of auction process, the issue has cropped up again as telcos will fund close to 50-60% of their Rs 1.10 lakh crore requirement for paying for the acquired spectrum by borrowing from financial institutions and banks. Mathews said they could even look at financing options from government but that could prove more expensive for them.

He said banks had an exposure of around Rs 2.5 lakh crore to the telecom sectors and fresh borrowings could take it up to over Rs 3 lakh crore.