Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) are now set to receive Rs 15,000 crore sovereign guarantee from the government of India. In October 2019, the Union Cabinet approved the revival package of BSNL and MTNL that included the allotment of 4G spectrum along with the issuance of a sovereign guarantee of Rs 15,000 crore. The proposal to issue the sovereign guarantee to BSNL and MTNL has now received the nod of the Department of Economic Affairs (DEA) in the finance ministry.
Sovereign Guarantee Enables BSNL, MTNL to Raise Money
The sovereign guarantee of Rs 15,000 crore which includes Rs 8500 crores to BSNL and Rs 6500 crores to MTNL, enables the operators to restructure the debts. Additionally, the sovereign guarantee utilised for the issue of long term bonds by BSNL, MTNL aids the operators to meet some capital expenditure requirements for the launch of 4G services.
However, in a letter dated July 8, the DEA approved the proposal but set numerous riders. It was said that state run operators are required to pay a guarantee fee at 1% each to the government.
The guarantee is also said to cover only the principal amount and the normal interest. Crucially, it was also highlighted that the sovereign guarantee shall not be transferable and “would cease to exist in case the ownership of the entity is transferred from government of India.”
The letter also said that the Department of Telecommunications (DoT) will review the proper utilisation of the guaranteed funds.
In case of default, the DEA said that the lending agency shall invoke the guarantee within 60 days of the default. The DEA said that the guarantee “would cease to exist for that portion of the tranche” in case the guarantee is not invoked by the lending agency within the time period.
BSNL Revival Package Also Includes Allotment of 4G Spectrum
It has to be noted that the BSNL and MTNL revival package also includes the allotment of 4G spectrum with the spectrum costs funded by the government. The revival package also included a Voluntary Retirement Scheme (VRS) to the employees of BSNL and MTNL aged 50 years and above. The government also said that the state-run operators will monetise their assets that would aid the operators to raise resources for network upgradation and expansion. Further, the revival package also included an in-principle merger of BSNL and MTNL.