Sovereign guarantee of Rs 15,000 crore to BSNL, MTNL to clear debts

BSNL and MTNL to receive Sovereign guarantee, the Department of Economic Affairs has approved the proposal with numerous brokers.

Public telecommunications in India Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) are now ready to receive a sovereign guarantee of Rs 15 thousand crore from the Indian government.

In October 2019, the Cabinet Ministers from the government of India sanctioned the BSNL and MTNL revival package which included the allocation of the 4G spectrum and the issuance of a sovereign guarantee of Rs 15,000 crore.

The proposal to release the sovereign guarantee to BSNL and MTNL has now received the go-ahead from the Department of Economic Affairs (DEA) in the ministry of finance.

Sovereign guarantee of the government of India allows BSNL and MTNL to raise funds

The sovereign guarantee of Rs 15,000 crore which includes Rs 8,500 crore to BSNL and Rs 6,500 crore to MTNL, allows operators to restructure their debts.

In addition, the sovereign-guarantee used by BSNL for the issue of long-term bonds, MTNL helps operators to meet certain capital expenditure requirements for the launch of 4G services.

However, in a letter of July 8, the DEA approved the proposal but established several corridors. State operators were said to pay a 1% guarantee fee each to the government.

The guarantee is also said to cover only the principal amount and normal interest. Basically, it was also stressed that the sovereign guarantee will not be transferable and "would cease to exist if ownership of the entity is transferred by the Indian government".

The letter also states that the Department of Telecommunications (DoT) will examine the correct use of guaranteed funds.

In the event of a default, the DEA has stated that the lending agency will invoke the guarantee within 60 days of the default. The DEA stated that the collateral "would cease to exist for that part of the tranche" if the lending agency does not invoke the collateral within the time frame.

The BSNL Revival package also includes 4G spectrum allocation

It should be noted that the BSNL and MTNL revival package also includes the allocation of the 4G spectrum with government-funded spectrum costs. The revival package also included a voluntary retirement plan (VRS) for BSNL and MTNL employees aged 50 or over. The government also said that state operators will monetize their resources to help operators gather resources for improving and expanding the network. In addition, the revival package plan also included a merger of BSNL and MTNL in principle.