Cabinet approves BSNL-MTNL merger, 4G grant, bond issue
New Delhi: The Union Cabinet on Wednesday approved the revival plan of loss-making firms — BSNL and MTNL — which includes allocation of 4G spectrum with a capital infusion of Rs 20,000 crore and their in-principle merger.
The revival and restructuring plan also includes permission to the entities to raise sovereign bonds of Rs 15,000 crore, monetise Rs 38,000 crore of assets and roll out a voluntary retirement scheme (VRS) for their employees.
The asset monetisation of both PSUs will be over the next four years. Pending the merger, MTNL will act as a subsidiary of BSNL till modalities are firmed up.
“BSNL has a lot of strength. Today’s Cabinet decision will have a positive impact on the sector and on BSNL and MTNL. Once they get the 4G spectrum, they will be able to fight… But BSNL also will have to see its efficiency goes up. They have to monetise all their assets, not just the land. The only chance that BSNL has to be a pan-India player is it has to merge with MTNL.. They stand a fighting chance now with 4G spectrum, VRS, asset monetisation and merger,” former Telecom Secretary Aruna Sundararajan, who was in the thick of action when BSNL-MTNL revival plans were discussed, said.
Both PSUs have been allowed to issue sovereign guarantee for long-term bonds of Rs 15,000 crore. In another relief to the huge workforce-burdened PSUs, the government also announced there will be an attractive VRS and will bear its cost. The 4G spectrum allocation to the PSUs will be done administratively and at 2016 prices.
“There will be administrative allotment of spectrum for 4G services to BSNL and MTNL to enable these PSUs to provide broadband and other data services. The spectrum will be funded by the Government of India through capital infusion in these PSUs at a value of Rs 20,140 crore and in addition, the GST amount of Rs 3,674 crore to this spectrum value will also be borne by the Government of India through budgetary resources. By using this spectrum allotment, BSNL and MTNL will be able to deliver 4G services, compete in the market and provide high speed data using their vast network, including in rural areas,” an official statement said.
Announcing the Cabinet decision, Telecom Minister Ravi Shankar Prasad said: “BSNL and MTNL are strategic assets. BSNL and MTNL will raise a sovereign bond of Rs 15,000 crore for their revival and assets of both the PSUs worth Rs 38,000 crore will be monetised. The Cabinet also approved an attractive VRS package for the employees. Government will provide 4G spectrum on an administrative allocation basis. The Cabinet has also given in-principle nod to the merger of BSNL and MTNL and till modalities are in place, MTNL will be a subsidiary of BSNL.”
Both PSUs will also raise long-term bonds of Rs 15,000 crore for which sovereign guarantee will be provided by the government and with these resources, the PSUs will restructure their existing debt and also partly meet CAPEX, OPEX and other requirements, the statement said.
The cash-strapped PSEs are laden with nearly 2 lakh employees which eat into their revenues and thus, the government has allowed VRS package at its cost.
“BSNL and MTNL will also offer Voluntary Retirement to their employees, aged 50 years and above through attractive Voluntary Retirement Scheme (VRS), the cost of which will be borne by the Government of India through budgetary support. The ex gratia component of VRS will require Rs 17,169 crore in addition, GoI will be meeting the cost towards Pension, Gratuity and Commutation. Details of the scheme will be finalised by BSNL/MTNL,” the statement said.
The merger will give BSNL access to the lucrative market of Delhi and Mumbai and it will be much better equipped to take on competition and boost its revenues.
BSNL is unlisted and MTNL is listed, but its net worth is eroded.
The telcos will monetise their assets so as to raise resources for retiring debt, servicing of bonds, network upgradation, expansion and meeting the operational fund requirements.
VRS was inevitable for both the PSUs as BSNL has 1.76 lakh employees across India while MTNL has around 22,000 employees. The employee cost of BSNL is 75 per cent and that of MTNL is 87 per cent of their total income.
It is expected that with the implementation of said revival plan, BSNL and MTNL will be able to provide reliable and quality services through its robust telecommunication network throughout the country, including rural and remote areas.
The highly competitive Indian telecom market has seen major consolidation in the last two years for firms to survive in the market. BSNL has a market share of 12 per cent.