Key Financings: Debt and equity movements in telecom

The Indian telecom sector witnessed significant investments in the past year, both from domestic as well as foreign players. The expansion plans of operators, entry of new players as well as the 3G and broadband wireless access (BWA) auctions were the key catalysts for sector growth. As per government estimates, about $11 billion was invested in the telecom market during the Tenth Plan period (2002-07), while $16.8 billion (revised upwards from $12.57 billion) would be invested in the Eleventh Plan (2007-12).

Most of the investments made in 2011 comprised licence and spectrum acquisition as well as mobile and long distance network development for wireless 2G, while the 3G and broadband space accounted for a small share of the total spend. Telecom companies have taken both, the debt and equity routes to fund expansion plans.

tele.net takes a look at the key financial moves in 2011…

Equity moves

• Singapore Telecommunications (SingTel) increased its stake in Bharti Airtel in two tranches. In January 2011, SingTel purchased 4.075 million shares in the company for Rs 13.6 billion in an open market transaction to increase its stake from 32.04 per cent to 32.15 per cent. The transaction was undertaken through SingTel’s wholly owned subsidiary, Viridian Limited. In April 2011, it further increased its stake in the Indian operator to 32.25 per cent by purchasing shares worth about Rs 9.34 billion. SingTel is the single largest foreign investor in Bharti Airtel.

• In January 2011, Tata Communications signed an agreement to completely acquire BitGravity, a provider of content delivery networks (CDNs). The deal was completed in February. In 2008, Tata Communications had invested $11.5 million in BitGravity for a 15 per cent stake and licensed the latter’s technology for its CDN service.

• India Telecom Infra Limited and Ascend Telecom Infrastructure decided to merge their tower businesses in February 2011. The merger was a cashless transaction, after which around Rs 4 billion was infused for creating additional infrastructure. The merger has created a telecom tower operator with a nationwide footprint, with about 4,000 towers and an average tenancy ratio of over 1.6. Prior to the merger, Ascend was owned by equity firm New Silk Route. India Telecom Infra is jointly owned by Infrastructure Leasing and Financial Services, and TVS Interconnect Systems.

• In one of the biggest equity deals of 2011, Essar exited from its telecom joint venture (JV) with Vodafone. Vodafone bought out the entire 33 per cent stake held by the Ruias in a $5 billion deal in March 2011. Essar’s 22 per cent stake was held through a Mauritius-based entity, while the remaining 11 per cent stake was held in India. Four months after the deal, Piramal Healthcare acquired 5.5 per cent stake in Vodafone Essar from ETHL Communications Holdings for $640 million. The deal valued the Indian operations of UK-based Vodafone at about $11.6 billion and helped the company in meeting the stipulated foreign direct investment limit of 74 per cent. Piramal Healthcare has an exit option in case Vodafone decides to launch an initial public offering (IPO), or it can sell back its stake to Vodafone.

• In March 2011, Sistema Shyam TeleServices Limited (SSTL) issued 547.31 million equity shares to the Federal Agency for State Property Management of the Russian Federation against the Rs 26.99 billion of funds received in December 2010. Prior to the share allotment, SSTL had issued 190.65 million equity shares to its existing shareholders including its Indian promoters, the Shyam Group. As per the revised structure of SSTL, the Russian Federation holds a 17.14 per cent stake while Sistema, the Shyam Group and the public own 56.68 per cent, 23.98 per cent and 2.2 per cent respectively.

• Asim Ghosh, former chief executive officer of Vodafone Essar, sold his 2.38 per cent stake in the company in April 2011 to Max India’s founder Analjit Singh for an unknown amount. In 2009, Ghosh had reduced his indirect shareholding in Vodafone Essar from 4.67 per cent to 2.38 per cent by selling a part of his shares for Rs 3.29 billion. Following the transaction, Singh’s stake in the operator has increased to 6.24 per cent.

• Monet Limited, a part of global investment firm ChrysCapital, sold over 83.4 million shares in Idea Cellular for about Rs 7.5 billion in July 2011. The shares constitute a stake of about 2 per cent in Idea Cellular. In the next month, UK-based First State Investment Management Limited acquired 57 million shares in Idea Cellular in an open market transaction to increase its stake from 3.29 per cent to over 5.02 per cent. In September 2011, global private equity (PE) firm TA Associates exited Idea Cellular. It is estimated to have received over Rs 9 billion in multiple tranches on its five-year-old investment. TA Associates had invested around Rs 4.21 billion in Idea Cellular in 2006, acquiring the shares from the promoters at Rs 41.50 a share. It then sold almost one-third of its shares in the first half of 2008. However, it bought more shares in early 2009, taking its total commitment to over Rs 4.5 billion. Thereafter, the entity sold around half of its remaining stake in mid-2009.

• In August, the Malaysia-based Axiata Group acquired an additional 0.9 per cent stake in Idea Cellular in an open market transaction worth Rs 3.06 billion, thereby increasing its holding in Idea to 19.98 per cent. This is the maximum stake that the company can hold in Idea as per the deal between the two parties in June 2008.

• In August 2011, ICICI Bank acquired 29.3 per cent stake in telecom infrastructure company GTL Limited after taking over the shares pledged by the Global Holding Corporation, promoter of GTL. The transaction was part of the company’s corporate debt restructuring (CDR) exercise. With this transaction, ICICI Bank has recovered about Rs 1.94 billion of the Rs 5 billion debt to GTL. Under CDR, Global Holding had pledged 99.1 per cent of its 52 per cent stake in the company to lenders. Syndicate Bank also has a similar claim over the remaining pledged shares.

• Bangalore-based Kavveri Telecom announced the complete acquisition of Spain-based Rymsa Telecom Business from Radiacion y Microondas SA in November 2011. The acquisition is aimed at strengthening Kavveri’s existing sales channels for group firms in Europe and Latin America, and improving the company’s product portfolio. The company expects the deal to increase its revenues by Euro 15 million. Kavveri Telecom is likely to invest around Euro 20 million in Rymsa Telecom.

• Towards end-2011, Reliance Industries Limited (RIL)-owned Infotel acquired a 38.5 per cent stake in Extramarks Education, a digital learning solutions provider. The investment was made through Reliance Strategic Investments, an affiliate company of RIL. RIL will reportedly infuse fresh capital in the venture and the deal will not result in any dilution of equity in Extramarks. The funds will be used for executing computer-aided learning projects and deploying new technologies. The move is expected to help RIL strengthen its content at a time when it plans to launch broadband services in 2012.

• One97 Communications shelved its IPO plans for another round of PE funding. The company had earlier received a go-ahead from the Securities and Exchange Board of India for raising Rs 1.2 billion through an IPO, and was due to be listed on the Bombay Stock Exchange.

Debt financing

• In January 2011, Reliance Communications (RCOM) raised Rs 11.55 billion through external commercial borrowings to part-refinance the 3G spectrum fee of Rs 85.85 billion. The loan was funded by a consortium of banks including the Australian and New Zealand Banking Group, BNP Paribas, Credit Agricole Corporate and Investment Bank, DBS Bank Limited and Intesa Sanpaolo Spa.

• RCOM also entered into an agreement with the China Development Bank (CDB) to secure Rs 87 billion for refinancing loans taken for 3G funding. The deal allowed RCOM to utilise Rs 60 billion for refinancing 3G spectrum fee payments and the rest for equipment import from vendors. The loan facility, fully underwritten by CDB, was funded by a syndicate of Chinese banks or financial institutions, including CDB. RCOM drew the first tranche of Rs 30 billion in March 2011, followed by the second tranche of Rs 17.8 billion and the third tranche of Rs 12 billion in May 2011.

• In January 2011, Vodafone Essar received a bank guarantee of $2 billion from a consortium of banks led by the State Bank of India. The guarantee was to be deposited to the Supreme Court to take forward Vodafone’s tax liability dispute with the Income Tax Department. The consortium included ICICI Bank and UCO Bank, both of which received small commissions for participating in the bank guarantee. As per the arrangement, the banks provided the cash in terms of forex to Vodafone as and when required. In turn, the operator furnished collaterals worth 110 per cent of the amount in the form of various instruments. The case relates to the $11.2 billion acquisition of Hutchison Telecom International, by virtue of which Vodafone entered the Indian market in 2007.

• In April 2011, Aircel borrowed $100 million from the Nordic Investment Bank to finance its 3G network rollout in India. The loan has a 10-year maturity period and the proceeds will be used by Aircel to finance its 3G and broadband wireless access projects.

• In the same month, infrastructure finance company IDFC lent Rs 5 billion to Tata Teleservices Limited as a long-term debt for implementing its expansion plans. It was a six-year bullet loan with a put-and-call option at the end of every three years.

• Sloka Telecom received funds of $600,000 from the Karnataka Information Technology Venture (KITVEN) capital fund in the same month. The telecom equipment manufacturer plans to use the capital to boost its manufacturing logistics, supply chain and marketing businesses. KITVEN is managed by the Karnataka Asset Management Company and is partly owned by the Karnataka State Industrial Infrastructure Development Corporation, the Karnataka State Financial Corporation and the Small Industries Development Bank of India, among others.

• In May 2011, RCOM redeemed the second tranche of its outstanding foreign currency convertible bonds (FCCBs). The company had raised $1.5 billion through these bonds in 2006. Of this, it had redeemed bonds worth $200 million in 2008, while the remaining was outstanding. While bonds worth $1 billion will mature in 2012, bonds worth $500 million were redeemed in May 2011. The company redeemed these FCCBs before their due date for conversion at a premium of 25.84 per cent. The redemption helped RCOM in avoiding the allotment of equity shares.

• In July 2011, Mahanagar Telephone Nigam Limited (MTNL) invited expressions of interest from banks for a long-term loan of Rs 15 billion. The loan was to be used by MTNL to repay its debt (part of 3G and BWA payments in 2010) and meet operational expenses. The loan was to be raised in tranches as per the operator’s requirement with a floating interest rate for seven years. By August 2011, MTNL had raised Rs 5 billion of the total amount. The operator is still in talks with various banks for the remaining Rs 10 billion.

• In September 2011, SSTL received a loan of $200 million (around Rs 9.77 billion) from ICICI Bank and Barclays. The banks lent $100 million each to the operator. The loan was raised in a single tranche and is repayable by 2014. The amount would be used for scaling up SSTL’s operations in the country.