Financial institutions have taken a leaf from venture capital funds' book. FIs have decided to accept the promoters' equity in telecom ventures in lieu of their licence. The objective is to accelerate the pace of financial closure of telecom companies, held back so far because telecom licences are not assignable. This trade-off is eminently sensible. As of now, the only real asset of a telecom venture is its licence. But the regulatory authority does not permit the transfer of the licence: the logic being that if a licencee fails to come up with a viable venture, DoT could issue a new licence for the concerned circle (not transfer the original licence).In terms of this logic, there is no question of the FIs getting the telecom licence. But the promoters' shares are assignable. By accepting them, FIs could get control of the company with its licence (in case of default) and then sell the stake or give the venture out on a management contract. (FIs can hardly be expected to run telecom companies).Effectively, promoters' shares are a close substitute for a licence.
Reportedly, FIs have taken the venture capital route to support Birla-AT&T and Tata Escotel. Who else? This is a tough question. FIs term loans will exceed the value of tangible assets; therefore, the lenders' assessment of the viability of ventures to be financed will be as crucial as their judgement on the capacity of the partners of the JVs to bring in funds. This means a majority of the telecom licences which have gone to controlling interests whose pockets are not deep enough will be given the short shrift by FIs. This is the nub of the problem, not the unwillingness of telecom licencees to pledge 100 per cent of their equity holding; after all, if they had assigned their licences (had that been permissible) their control would be as insecure. The short point is that the venture capital route does not hold the promise of bailing out telecom licencees en masse. FIs act in a consortium. So it is not as if they will act competitively asventure capitalists.
The Indian controlling interests who do not pass muster with FIs will have to either reduce their equity stake in favour of foreign partners in the JVs or resort to costly inter-corporate deposits. (The latter is a theoretical possibility, as inter-corporate loans are generally for short periods). However,in both cases, modus vivendi will be uncomfortable. It seems a shake out in the number of telecom ventures is unavoidable.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
