The Telegraph
Monday , April 14 , 2014
CIMA Gallary

Banks see spectrum leeway

New Delhi, April 13: The government may soon come out with regulations to allow banks to take over spectrum, mortgaged with them by telecom companies, and sell it either through auctions or negotiated sales.

Earlier rules allowed banks to take over and auction spectrum, but the process was extremely difficult as the department of telecom had to give its approval at every stage, from the takeover to the auction plan to the actual bidding. Besides, negotiated sales were not allowed.

Bureaucratic rigidity over the interpretation of rules meant that banks would hardly be able to take over spectrum without ministerial permission, something the lenders were not comfortable with.

They complained to the finance ministry that they had lent money to the telecom companies without having the right to take over and encash the mortgage.

Telecom companies have about Rs 2.50 lakh crore of collective debt, a big part of which was taken during the 3G spectrum auctions. Though many of the smaller players are in the red, banks have not been able to proceed against them.

New rules that kicked in earlier this year permitted operators to sell spectrum to each other, subject to regulations to guard against monopolies. This prompted bankers to demand similar rights.

Finance ministry officials said they had managed to override the objections raised by the department of telecom, getting the latter to agree to allow banks to trade in spectrum, which they can take over and sell.

Senior officials said rules applying to telecom companies on spectrum trading will also apply to banks. This means banks will have to pass on 1 per cent of the money they receive through the spectrum sale to the government.

Officials said the rule tweak was vital for banks as the telecom players had been seeking more loans to pay for the 2G spectrum they had bought in the recently held auctions even as the lenders were wary of the sector, witnessing lower profitability and thin spreads.

Several telecom companies had complained that they were finding it tough to access loans as banks did not consider spectrum to be a “good enough” collateral without the right to seize and sell it in the case of default.

Loan burden

Many of the proposed mergers and acquisitions in telecom are also stuck because of the high loan overhead that the target companies are faced with. Some of the small entities have negative net worth.

For instance, Chennai-based Aircel has a net worth of Rs 4,198 crore. It is now reportedly trying to raise around Rs 21,000 crore from a consortium of banks led by the State Bank of India.

Bankers point out that this loan can be justified by the consortium to the respective bank boards or shareholders only if the spectrum held by Aircel is mortgaged like a house or a factory.