Cash-strapped telecom companies will now be able to mortgage spectrum to raise funds from banks. That's because the Reserve Bank of India and the Finance Ministry have agreed to consider spectrum a tangible asset.
The RBI has, however, set some conditions. It has said that the lending banks should be given full rights to the spectrum in case of default by the telecom companies. Banks will be allowed to sell, exchange or auction the spectrum in lieu of the money given to the defaulting company.
This comes as a big relief for telecom companies that were finding it difficult to get funding post the Supreme Court's order to cancel 122 licences.
Banks, which had lent thousands of crores of rupees to the new 2G players, found themselves stranded with the court cancelling the licences, on the one hand, and, on the other, the Government planning to resell the spectrum in the market.
The Department of Telecom had sought the RBI's approval to permit telecom companies to mortgage spectrum for future deals. This is crucial to the upcoming 2G auctions as the bidding telecom companies would have struggled as banks are reluctant to extend loans again without any collateral.
Action plan
To resolve the impasse, lenders led by SBI Capital Markets Ltd had earlier written to the Telecom Regulatory Authority of India with a six-point action plan, including allowing the operators to mortgage spectrum as collateral. State Bank of India has a total exposure of Rs 23,000 crore in the telecom segment, of which Rs 15,000 crore is direct funding and the balance is non-fund based (guarantees, and so on).
The RBI has said that there should be tripartite agreement between the Government, the lender and the borrower to ensure that the lender's interests are duly taken care of, even in the case of force majeure .
“In case of cancellation/revocation/voluntary surrender of telecom licence before full satisfaction of dues to the lender, whatsoever may be the reason, the title/right to spectrum should be with the lenders,” the RBI said in a communication to the Finance Ministry.
“We further emphasise that a robust formula for finding the market price of spectrum together with a margin has to be prescribed to take care of the downturn fluctuations in prices before spectrum can be treated as a tangible security,” the RBI said.
The Finance Ministry has ratified the RBI's views and has asked the DoT to include the conditions set by the RBI in the tripartite agreement.