This move comes after the institutions had informed the company that extension of a large loan facility to the venture would have hit the Ispat group's exposure limits.

"We have asked the institutions not to apply group exposure limits in this case as the funding will be on a non-recourse basis. Also, such limits should not be applied here as Hughes Electronics has management control of the venture for the first five years," said a source.

Hughes Ispat had, some time ago, approached domestic institutions to pick up a larger share of its total debt requirement of about Rs 2,500 crore after it failed to secure a political and risk coverage from US Exim.

The company had sought a US Exim guarantee for its proposed $400 million external commercial borrowing and had also signed a memorandum of understanding with the agency. However, such a guarantee was denied in the wake of sanctions imposed by the US government following the nuclear blasts conducted by India.

Hughes Ispat had already given the mandate to CIBC (Canadian Imperial Bank of Commerce) to lead-arrange the forex component of the debt totalling about $400 million and to ICICI for lead-arranging the rupee component of an estimated Rs 600 crore. The company has appointed Bank of America as its lead advisor to tie-up its financing.

Hughes Ispat has drawn up plans to invest about Rs 3,500 crore in the project over the next five years. It has also committed to pay Rs 13,909 crore as licence fees over a 15-year period with Rs 397.5 crore already paid as the first year's fee.

Hughes Ispat has also already announced its plans to start offering its services in the Mumbai-Pune region by the end of the year. These will be launched in phases over a three month period. The company has already announced its plans to use the GMH 2000 WILL system developed by Hughes Network Systems of the US for providing its services.

As per the licence agreement, Hughes Ispat is required to provide 10,000 telephone lines in the first year of operations and 6,07,000 lines within three years of signing the licence agreement. It is also required to cover 4,000 villages with a telephone facility in the first year of operation and all villages in the state within two years of commencing operations.

INSIGHT
Hughes involvement should help

As its main vendors are from the US and Japan, Hughes Ispat had initially hoped to raise a significant part of the $600 million required for financing its network from these countries. The US sanctions in response to India's nuclear tests had frozen loans from the US and Japanese Exim Banks.