Facing cash crunch due to subdued financial performance, state-run MTNL is planning to restructure its Rs 7000 crore loan taken for buying 3G and BWA spectrum last year.

The PSU is planning to convert Rs 3,000 crore loan into long term debt.

MTNL, which operates in two metros -- Delhi and Mumbai-- had raised a short-term debt of over Rs 7,000 crore for acquiring 3G and broadband spectrum.

The company has already restructured Rs 3,500 crore of debt, repaying Rs 500 crore and tying up with two state-run banks for the rest Rs 3,000 crore, sources in the know said.

The sources said the company is expected to convert this short-term loan into a long-term debt for a period of seven years and is likely to complete this process by July this year.

The company will pay the interest for the first three years and then will pay the principle amount and the interest for the remaining four years, the sources said while describing it as a 'ballooning structure' of payment.

These finances were arranged through short-term loans and at a very competitive rate of interest ranging between 7.3 and 7.5 per cent annually. Prior to this, the PSU was a debt-free company and also had cash reserves.

MTNL operates in Delhi and Mumbai and was allocated 3G and BWA spectrum about a year ago on the condition that the PSU would pay as per the final bid in the auction that ended on May 19 for 3G and June 11 for BWA.

Delhi and Mumbai were the most expensive circles for 3G with the bid for Delhi costing Rs 3,316.93 crore and Mumbai Rs 3,247.07 crore against the reserve price of Rs 320 crore each for both the metros.

Similarly for BWA, Delhi and Mumbai saw the highest bids at Rs 2,241.02 and 2,292.95 crore, respectively.

MTNL has already launched 3G mobile services.

Last week, the telecom major had reported a yearly net loss of Rs 2,826 crore, up 8.27 per cent from Rs 2,610.9 crore in the same period previous year.

Total income rose to Rs 3,841.2 crore as against Rs 3,781 during the period under consideration.