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Telecom: Monetarization of Future Receivables

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Telecoms are providing devices on instalment / lease as complimentary sales to their main service. This generates sometimes big amount of future receivables that could be translated in cash.

I need the description of the options that a telecom could use in order now to monetise future receivables (secularisation certificate, bond issuing, sale of future receivables). Critical discussion of different methods:
- the positive and negatives in those options
- Legal framework and accounting description and differences
- The risk is transfers and on trade of what ?
- The operational and regulatory implications

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Solution Summary

This posting describes three options that telecoms can use for monetarization of future receivables.

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We describe the three options that a telecom could use to monetize future receivables. These options are securitization certificate, bond issuing, and sale of future receivables.

Securitization certificate:
The positives of this option are the securitization certificate is entirely separate from the telecom business, the telecom gets access to wider capital markets, and the shareholding of the telecom does not get diluted by securitization. The assets in the securitization certificate are protected even if the telecom faces financial problems and this reduces credit risk for investors (a). The negatives of this option for the telecom are that a securitization certificate can be a complicated and expensive way of monetizing assets, the securitization certificates may restrict the telecom from raising finance in the future, and some business value can be lost because of floatation. Also, it can be costly if the telecom wants to take back its assets and close the SPV.

The legal framework and accounting description and differences are to determine if the securitization meets the sale criteria under GAAP. According to FAS 140, the basis for the conclusion said that transferred assets from which the Telecom (transferor) can get no further benefits are not its assets and should be removed from its financial statements (d). Also, Telecom should have no continuing involvement in the transferred assets. Continued involvement includes servicing responsibilities of mobile devices, recourse obligations but not standard warranties, participation in future cash flows, and management responsibilities of the ...

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  • BSc, University of Calcutta
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