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Telcos in India can now raise debt using spectrum as collateral

Telcos in India can raise debt by pledging spectrum as collateral, since Department of Telecom (DoT) has reportedly agreed to the finance ministry’s views of classifying bandwidth as a tangible asset, reports The Economic Times.

According to an internal telecom department note accessed by the publication, spectrum bandwidth met all criteria set for an asset to be recognised as tangible, as it is similar to optic fibre and other transmission networks. By classifying spectrum as a tangible asset, banks will now be more confident in accepting it as as collateral, especially since spectrum is the most valuable asset that a telco has.

This decision will be great for telcos like Airtel and Vodafone which had a debt of more than $9 billion and $4.7 billion respectively, even before the spectrum auction. The 2G auction payments is expected to add a combined debt burden of more than $33 billion in the telecom sector, even when its spread out over 10 annual investments.

Aircel had recently received a go-ahead from the DoT to raise Rs 21,000 crore in local and overseas loans from a State Bank of India-led consortium and this decision could have been influenced by change in DoT’s policy.

Why do telcos need to raise funds

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Telcos in India will require extra funding to strengthen its coverage in rural areas while upgrading its infrastructure in urban areas. Airtel and Reliance Jio is already setting up infrastructure for rolling out 4G network in several cities and other operators are expected to follow suit within a year. That being the case, external financing could help them do it faster.

The bigger telcos could also raise money to acquire several smaller operators who might not otherwise have enough money to sustain operations. In February this year, Airtel had inked a strategic agreement to acquire the operations of Mumbai-based Loop Mobile. Vodafone CEO Marten Pieters had also stated his plans to acquire assets of other telcos in India, including spectrum and fibre assets, in order to get a pan-India footprint for data services. There has been speculation that it will acquire Tata Communications and Tata Teleservices, but Vodafone has refused to comment on such a move.

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