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June 29, 1998
The anti-nukes economic sanctions imposed by the United States and the consequent downgrading of India's sovereign rating by Moody's will affect the telecom industry's borrowing.
But the debt component is yet to be tied up by 40 of these companies. Many of the cell companies such as BPL-US West, Bell Canada and others are planning to access the US market to tie up their debt portion.
With the US sanctions in place, funding purchase of American equipment without US Exim Bank guarantees would become difficult.
Loans from US banks would become much costlier, both because of the sanctions and the Moody's downgrading of India.
AT&T-Birla and Escotel are the only two companies to have tied up their debt so far. All other joint ventures have been running operations through equity infusions and suppliers credit from equipment suppliers such as Siemens and Ericsson.
These companies could not even get debt from Indian financial institutions as the lenders took time to work out a proper mechanism to lend to the telecom industry where typically a positive revenue stream would start occurring in the fourth or fifth year of operation.
The US sanctions and Moody's downgrading could not have come at a worse time for the cellular industry which is already facing many a severe cash crunch with bankruptcy facing may operators. The market for cell phones has not grown as projected and this has caused severe cash flow problems for many cell companies.
These companies had hoped to raise debt from the international market to match their equity. But the prospects of their raising debt are very bleak.
- Compiled from the Indian media
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