Telecos seeking bank loans want spectrum trade rules in place

Feb 11 2014, 01:09 IST
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The guidelines say spectrum trading between mobile operators will attract a transfer fee of 1% on the transactional amount. Reuters The guidelines say spectrum trading between mobile operators will attract a transfer fee of 1% on the transactional amount. Reuters
SummaryTripartite agreement is signed between telco, licensor and the bank for bank loans for spectrum.

UNLESS the government quickly notifies the guidelines for spectrum trading issued by the Telecom Regulatory Authority of India (Trai) last month, telcos looking for bank loans to pay the government for airwaves bought at the auction might be strapped for cash, reports fe Bureau in New Delhi.

The guidelines say spectrum trading between mobile operators will attract a transfer fee of 1% on the transactional amount or the prescribed market price, whichever is higher; it will be payable by the seller to the government.

Mobile operators have urged the government to act soon so that banks are more amenable to giving them loans. Although the government had in 2012 allowed spectrum to be mortgaged against loans, banks remain unconvinced in the absence of spectrum trading being permitted.

That’s because while technically banks are allowed to auction spectrum, in practice they can do so only after consulting the department of telecommunication (DoT). Also, given that there are issues of design and reserve price, an auction is a cumbersome and time-consuming process. If spectrum was allowed to be traded, however, banks could simply trade it rather than hold an auction and that would make them more confident about the value of the collateral.

Typically, when a mobile operator wins spectrum and approaches a bank for a loan with which to pay the government, a tripartite agreement is signed between the telco, licensor (government) and the bank. In case the telco defaults, banks have unfettered rights to sell, transfer, assign, exchange or otherwise dispose of the spectrum, free of any restraining conditions. The lender’s interest is protected even in the case of a force majeure. Also, if the operator’s licence is cancelled, revoked or if it is voluntarily surrendered, the title and right to spectrum rest with the lenders.

While no prior permission would be required for trading in spectrum, the companies need to inform the government about any prospective trade six weeks prior to the effective date of trade.

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