India relaxes overseas borrowing rules ahead of 3G auction

In a move to boost next month’s 3G auction, the Indian government has relaxed overseas borrowing rules to help telcos arrange short-term funds.
 
Prospective bidders will now be allowed to raise money from the domestic market to pay for the spectrum and later refinance those amounts through cheaper overseas borrowings.
 
“As the amount involved will be huge and has to be raised within a limited period of time and payable directly to the government, it has now been decided that the fee for spectrum allocation may be met out of rupee resources by successful bidders, to be refinanced with a long-term ECB [external commercial borrowings],” the finance ministry said in a statement Monday.
 
Firms will have to refinance the amount within 12 months.
 
Successful bidders for 3G have to pay 25% of the bid amount within five days of the close of the auction and the balance amount within 15 days of the auction closure.
 
Given “the short window available between the date of application for the auction and the date of payment,” bidders are finding it difficult to raise funds through ECB, the statement said.
 
Last month, the Reserve Bank of India had allowed telecom companies to raise money overseas toward paying spectrum fees. The government wants to complete the auction before the financial year ends in March, and is expected to raise up to 350 billion rupees (€5.42 billion) from it. The funds will go toward helping the government manage its rising fiscal deficit, which is estimated at a high of nearly 7% for the year ending in March.
 
The move is likely to ensure there is aggressive bidding at the auction. Indian operators are struggling for spectrum in a market that in November added 17.65 million subscribers, taking the total tally to over 500 million.
 

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