Global slowdown hits vendor finance for cell cos

Vandana Gombar

New Delhi, Aug 26: THE last time cellular telecom networks were being rolled out, telecom infrastructure vendors were active in providing financing to the new operators. However, vendor financing is going to be much more difficult to come by this time round as the leading vendors, which include the likes of Ericsson, Motorola, Nokia, Alcatel, Lucent and Siemens, find themselves struggling with the global economic crunch. Even as they push their wares to successful bidders of the fourth cellular slot, the terms the vendors are able to offer are constrained by three main factors:

• The contraction of their business globally as a result of the slowdown, which means there is less credit available on offer
• Cases of default in payments by Indian and foreign firms
• The sharp contrast between the rate of growth of telecom penetration in India, vis-a-vis its neighbours like China, which ensures that a huge chunk of total financing goes to the faster growing telecom networks

Vendor financing in India has typically taken the form of bridge loans of 6-12 months duration, during which the operator is able to tie up equity and debt to finance the project. During peak times, a vendor like Motorola had as much as $100 million credit extended to telecom firms.

“We are going to be extremely cautious in providing financing this time round. Vendor financing is going to be restricted to solid projects backed by promoters with a strong track record,” said Motorola’s country head Pramod Saxena.

Motorola has $23 million outstanding from BPL Cellular. The case for retrieval of the dues is currently in the courts. The company may approach the courts for recovering its $50 million dues from another company — Modicorp’s Spice Communications. Internationally, Turkish telecom operator Telsim has also defaulted on debt owed to Motorola which has provided a whopping $2 billion financing for the operator.

Bankruptcy of start-up broadband services company Winstar Communications has hit another vendor — Lucent Technologies — which had a $2 billion financing deal with the start-up.

The irony of the situation, however, is that while vendors are more than willing to provide funding to financially strong firms, these very firms, like Bharti, are planning to stay off this route of financing.