Over the past few years, policy and regulatory uncertainty has impacted investor confidence in the Indian telecom sector, and this sentiment continued through 2013. Limited activity was witnessed in the equity space with Bharti Airtel at the forefront of such deals, having acquired stake in several international ventures. Meanwhile, the listing plans of operators such as Vodafone India and Sistema Shyam TeleServices Limited did not materialise due to volatile market conditions and operational challenges.

The highly leveraged operators continued to focus on strengthening their balance sheets through debt-paring strategies. Bharti Airtel, Mahangar Telephone Nigam Limited (MTNL) and Tata Communications raised money through bonds while Tulip Telecom and Aircel undertook significant debt restructuring. Further, in a bid to focus on their core assets and operations, some operators were looking to hive off their non-core operations into separate entities. Bharti Airtel hived off its data centre and managed services business to its wholly owned subsidiary, Nxtra Data, for about Rs 1.77 billion. The subsidiary manages the company’s seven data centres – two in Noida and one each in Chennai, Bengaluru, Pune, Bhubaneswar and Mumbai.

Meanwhile, Bharti Airtel, which was looking to sell its tower assets in African markets for $1.8 billion, received expressions of interest from Helios, the American Tower Corporation, IHS and Eaton for 15,000 towers. As part of its plans to divest its non-core assets and focus on its core wireless and enterprise businesses, Reliance Communications (RCOM) was looking to hive off its real estate assets under a separate entity, Reliance Properties. According to the operator, the monetary value of the real estate assets is about Rs 120 billion. Reliance Properties will be listed separately and RCOM’s shareholders will receive a stake in the new company on a pro-rata basis. In April 2013, Tata Communications sold its land property at Nungambakkam, Chennai, for Rs 1.92 billion. The proceeds have been utilised to reduce debt.

In a positive development, the Reserve Bank of India allowed Indian telecom operators to refinance rupee loans through the external commercial borrowing (ECB) route till March 31, 2014. This is applicable only to loans that had been taken for acquiring 3G spectrum in 2010. Earlier, operators who had opted for the ECB route were asked to conclude the transaction within 12 months from the date of payment of the first instalment for the acquired spectrum.

Meanwhile, the government removed the foreign direct investment cap for the telecom sector, allowing foreign entities to hold 100 per cent share in Indian telecom companies. This is a positive move for the sector, which has seen limited foreign participation over the years. Following this, UK-based Vodafone Plc has received Foreign Investment Promotion Board’s (FIPB) approval to increase stake in its Indian operations from 74 per cent to 100 per cent. At present, Piramal Healthcare and Analjit Singh own 11 per cent and 6 per cent stake respectively in Vodafone India. The remaining stake is held by private investors.

tele.net takes stock of the key deals in the equity and debt space in the Indian telecom sector over the past year…

Equity deals

•In April 2013, Bharti Airtel signed a deal to acquire 100 per cent stake in Warid Telecom Uganda from the Abu Dhabi Group for $85 million-$100 million. The acquisition has increased Airtel’s subscriber base in Uganda by about 61 per cent from 4.6 million to 7.4 million. The operator will acquire the remaining 30 per cent stake in Warid Telecom’s Bangladesh subsidiary. In 2010, Airtel had purchased 70 per cent stake in the company for $300 million. In November 2013, Bharti Airtel signed another agreement with Warid Telecom to acquire the latter’s operations in Congo. The deal was valued at $100 million-$120 million.

•In June 2013, Bharti Airtel completed 5 per cent stake sale to the Qatar Foundation Endowment. Airtel issued and allotted up to 199.87 million equity shares at a price of Rs 340 per share on a preferential basis. The operator intends to use the proceeds to fund its capex needs and reduce debt.

•In August 2013, SingTel’s subsidiary, SingTel International Investments Private Limited, signed a conditional share purchase agreement with MacRitchie Investments Pte Limited to acquire the latter’s 3.62 per cent stake in Bharti Telecom. SingTel will buy 788,538 shares of Bharti Telecom at Rs 23,578.45 per share. As Bharti Telecom owns 43.57 per cent stake in Bharti Airtel, SingTel’s share in Airtel would increase from 30.76 per cent to 32.34 per cent after the acquisition.

•In September 2013, Telecommunication Consultants of India Limited (TCIL) received approval from the Telecom Commission to divest its 30 per cent stake in Bharti Hexacom, a subsidiary of Bharti Airtel. TCIL intends to use the proceeds from the sale to meet its capex requirements. It will appoint an adviser to recommend a price for its stake in Bharti Hexacom, which would also require approval from the Telecom Commission. Once the recommended price is approved, the adviser will invite bids for the stake. Bharti Airtel has the right of first refusal, which implies that the operator has the first right to acquire the stake. In 2011, Deloitte had valued the 30 per cent stake at Rs 18 billion, but the government had rejected the price considering it low.

•In October 2013, SingTel acquired the remaining 26 per cent stake in its Indian subsidiary, SingTel Global (India), from Bharti Enterprises (9.9 per cent) and other investors (13.1 per cent) for Rs 29.8 million. The move came after the FIPB approved SingTel’s request to increase its stake in the subsidiary from 74 per cent to 100 per cent. SingTel Global (India) provides international long distance services.

•In the same month, Bharti Airtel acquired the remaining 51 per cent in Wireless Business Service (WBS) from Qualcomm Asia Pacific. WBS, founded by US-based chip manufacturer Qualcomm, holds broadband wireless access spectrum in the Delhi, Mumbai, Haryana and Kerala circles. The acquisition resulted in an increase in Bharti Airtel’s stake in WBS from 49 per cent to 100 per cent. Following this, the four companies have become subsidiaries of Bharti Airtel. Earlier, Airtel had acquired 49 per cent stake in each of the companies for $165 million.

Debt financing

•In January 2013, Tata Communications Netherlands issued bonds worth Rs 22 billion in the Singapore bond market. The bonds, which were guaranteed by the parent company, Tata Communications, have a coupon rate of 4.25 per cent and a term of three years. About 63 per cent of the bonds were subscribed to by institutional investors while the remaining were acquired by high net worth individuals. The Royal Bank of Scotland, DBS and Standard Chartered Bank were the lead managers for the issue.

•In March 2013, Bharti Airtel raised $1 billion by selling bonds in the international market through its subsidiary Bharti Airtel International (Netherlands). The 10-year unsecured bonds, which were oversubscribed by 9.5 times, have a coupon rate of 5.13 per cent per annum. The bookrunners and lead managers for the bond sale were Barclays, BNP, Citigroup, Deutsche Bank, HSBC, Standard Chartered Bank and UBS. Bharti Airtel used the proceeds to reduce its debt.

•In the same month, MTNL raised Rs 10.05 billion through the sale of 10-year sovereign-guaranteed bonds. The operator has used the proceeds to pay off its debt and fund its planned capex. the company had appointed Karvy Computershare Private Limited as the registrar and share transfer agent, SBI CAP Trustee Limited as the trustee, and CARE and CRISIL as the credit rating agencies to oversee the bond sale.

•In May 2013, Tulip Telecom received approval from the empowered group of the Corporate Debt Restructuring (CDR) Cell for restructuring its debt of Rs 22 billion. Under the CDR package, the company was granted a moratorium of 30 months and 18 months on repayment of the principal and interest respectively. The promoters of Tulip Telecom contributed Rs 600 million as per the requirement of the CDR package.

•In the same month, Bharti Airtel International (Netherlands), a subsidiary of Bharti Airtel, raised $500 million through the issue of fixed rate bonds in the international market. The bonds have been issued at a price of Rs 100.625 and will have a yield of 5.44 per cent. Airtel intends to use the proceeds from the bond sale to pay off debt and fund its capex. Barclays, BNP, Citigroup, Deutsche Bank, HSBC, Standard Chartered Bank and UBS were the bookrunners and lead managers for the bond sale. About 50 per cent of the issue was subscribed to by investors in the US, 32 per cent by investors in Europe and the remaining by Asian investors. In March 2013, the operator had raised $1 billion through the sale of 10-year bonds.

•In June 2013, RCOM completed the securitisation of the proceeds from the Rs 12 billion intercity fibre sharing agreement with Reliance Jio Infocomm Limited. The securitisation was completed with both Indian and foreign banks. The funds have been utilised to reduce RCOM’s debt obligations.

•In August 2013, Aircel secured a loan of Rs 80 billion from IDFC and Credit Suisse. While IDFC will provide a credit of Rs 45 billion, Credit Suisse will provide the remaining funds. The operator will utilise the funds for repaying part of its debt, which reportedly stands at Rs 240 billion. Further, Aircel is likely to approach its existing lenders for additional funds to refinance debt. The operator recently received approval from the CDR Cell for restructuring its debt.

•In December 2013, Bharti Airtel’s subsidiary Bharti Airtel International (Netherlands) BV raised Euro 750 million through a bond issue. The bonds, which carry a guarantee from the parent company, have a term of five years and a fixed coupon of 4 per cent. Airtel will use the funds for refinancing its debt and for acquiring spectrum in the auctions in January 2014. The bonds were acquired by fund managers (77 per cent), SSA/ insurance companies (9 per cent), private banks (9 per cent) and public banks (5 per cent). Barclays, BNP Paribas, Deutsche Bank, JPMorgan Chase & Co., Standard Chartered Bank and UBS were the joint bookrunners and lead managers for the issue. The operator raised $1.5 billion through two bond issues in early 2013.

Others

•In January 2013, MTNL delisted its American depository shares (ADS) from the New York Stock Exchange in order to list the ADS on the OTCQX International Market. While the delisting took place on December 31, 2012, trading of the operator’s ADS on the OTCQX commenced on January 2, 2013. OTCQX provides a platform for US companies to invest in non-US companies that are listed on their domestic stock exchanges.

•In December 2013, Idea Cellular secured a grant of $1 million from the US Trade and Development Agency to fund its green telecom pilot project. The project involves deployment of solar hybrid methanol-based fuel cells (SHMBFCs) at 5 per cent of the company’s tower sites in India. The pilot project is aimed at assessing the technical, economic and financial feasibility of deploying fuel cells, which provide continuous and uninterrupted power to off-grid telecom towers. Under the project, Idea Cellular plans to replace stationary diesel engines with SHMBFC technology using 2.5 kW and 5 kW fuel cell units. The pilot project is being supported by ICF International, which plans to undertake a feasibility study in the next few months.