The Hindu Business Line : External credit agencies major source of funding for telecom projects

"Vendors now approach telecom operators with package deals that contain external credit agency funding offers," said a senior executive with a telecommunications company.

Kripa Raman

Mumbai, March 13

EXTERNAL credit agencies have become sources of substantial funds for Indian telecommunication projects as equipment suppliers in their respective countries push for large contracts in India.

These credit agencies have provided $750 million, or nearly one-third of Reliance Infocomm's total debt requirement of $2.2 billion for its pan-India telecom project.

The Export Import Bank of the US provided $500 million by way of guarantee, and the Export Development Canada $250 million in direct loans to Reliance Infocomm. The funds were arranged by Citigroup India a couple of months ago.

The external credit agency funding facilities availed of by Bharti Tele-Ventures recently exceeded in size its foreign currency convertible bond issue last year.

The company recently tied up over $350 million in funds from European export credit agencies, the bulk of it from Sweden's export credit agency EKN. The rest was from FinnFund of Finland. Bharti Tele's FCCB issue in April last year amounted to $115 million.

And other pan-India players such as Tata Teleservices are understood to be talking to vendors that have attractive export credit backing from their respective countries.

"Between 30 per cent and 40 per cent of incremental debt currently coming into the country for telecom consists of external credit agency funding," said Mr Shailesh Shirali, Executive Director & head, TMI & Structured Finance, at Rabo India Finance.

These agencies essentially support telecom equipment suppliers from their respective countries; Nortel and UTStarcom in the case of US Exim and EDC; Ericsson in the case of Sweden's EKN and Nokia in the case of FinnFund.

"In fact, vendors now approach Indian telecom operators with package deals that contain external credit agency funding offers," said a senior executive with a large telecommunications company.

"Partly this kind of finance allows the (largely) West-based vendors to compete with cheaper Chinese and domestic Indian vendors that are not backed by external credit agency funding," said a senior official with Mahanagar Telephone Nigam Ltd.

"This is why the larger buyers of Chinese equipment have been the Indian public sector companies which must largely stick to the L1 (least-cost) process when tendering. External credit agency backing has ensured that cheaper vendors have still not been able to break into the Indian private telecom sector," he said.

Western equipment vendors don't want to lose out on Indian orders, because Indian requirements are of a large size. "We have a huge population, and when India opens its mouth for orders, they are large orders," said an official with Bharat Sanchar Nigam Ltd.

The spread on these funding facilities could be 35 basis points to 50 basis points over LIBOR.

This is not particularly more attractive than other kinds of external borrowings, but their key attraction is in the tenor, said telecom executives.

Sometimes the loans also provide a moratorium on payments.

Reliance Infocomm, for instance, has got a repayment tenure of 10 years, that too after one-and-a-half years for build out of its network. Bharti's funding is for a door-to-door tenor of 10 years. This tenor range is more in keeping with the cash flows of the telecom sector. Other external commercial borrowings are more like bullet loans, generally not exceeding five years in tenor, said a senior official with a telecom company.

In the early days of the private Indian telecom industry, vendor financing was more like unsecured bridge finance facilities, said Mr Shirali.

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