In another breather for telcos, spectrum mortgage gets RBI nod

In a major relief to the telecom industry, laden with high debt, the Reserve Bank of India has given its green signal to the proposal to mortgage spectrum.

This will enable telecom companies to raise money from financial lending institutions.

However, the finance ministry has said in a letter to Telecom Secretary R Chandrashekhar that the proposal, first mooted by the Telecom Regulatory Authority of India this year and having in-principle approval of the Telecom Commission, the highest decision-making body of the Department of Telecommunications, is subject to fulfilment of certain conditions.

These include a tripartite agreement among the Government of India, the lender and the borrower to protect the interests of the lender in case of a force majeure.

"The RBI has advised it may consider treating spectrum as tangible security, subject to fulfilment of conditions," the letter read.

The telecom industry, with a cumulative debt of around Rs 2,75,000 crore (Rs 2,750 billion), has been mired in various controversies, besides facing intense competition, low tariffs and falling margins.

The development also assumes importance as the government all set to conduct the auction for 2G spectrum by August 31, in line with the Supreme Court directive, following the cancellation of 122 licences on the apex court's order.

Other conditions put down by RBI include a robust methodology to discover the market price of spectrum and a margin to take care of downward fluctuations in prices and a credible valuation methodology to value spectrum reflecting the true realisable value of the airwaves.

Further,

in case of default by a borrower, the bank should have the unfettered right to sell, transfer, assign exchange or dispose of the spectrum, without any restraining condition, the ministry has said.

Also, in case of cancellation or revocation or voluntary surrender of telecom licence before the realisation of full dues, the right on spectrum should be with the lenders, it has added.

DoT had sought the opinion of the law ministry on the issue, while the proposal for mortgaging of spectrum was also to be examined by finance ministry and RBI.

"This issue will be taken up on a priority basis as it needs to be decided before the finalisation of auction guidelines and issuance of notice inviting applications," a senior official from DoT had said.

Trai, in its recommendations on spectrum auction, had said on April 23 this year that telecom companies might be allowed to mortgage spectrum to a registered Indian financial institution against borrowings.

However, the mortgage would be subject to the condition that in the event of default of the liability, the spectrum would be auctioned by the financial institution under the supervision of DoT and all proceeds in excess of the liability would be remitted to the government.

An empowered group of ministers, headed by Finance Minister Pranab Mukherjee, has been mandated to take final decisions on all auction-related issues.

The next meeting of EGoM, where the proposal for mortgage of spectrum and the other contentious issue of base price for the auction will also be decided, is slated to take place towards the end of this month.

In the first meeting, the EGoM had cleared the proposal for the auction of 10 MHz of spectrum in eight blocks.