India’s most recent spectrum auction sparked fierce competition among the country’s telecoms players, leaving the Indian government $17.6bn richer at its conclusion in March. The huge outflow from telcos’ coffers was expected to be funded in part by overseas loans, but syndicate bankers have been met with disappointment so far, with none of that business coming their way.
Many believe this is because the intrinsic nature of the country’s telecoms sector, where most of the revenues and expenses are in rupees, makes it unnecessary to look for funding from international capital market channels.
But things might change. Recent news that Bharti Airtel may be considering a syndication to finance its outlay for the spectrum means at least some of the activity may come loans bankers’ way.
Bharti Airtel has approached the Reserve Bank of India for permission to raise an external loan of $1bn that would be used partially to pay for 2015’s spectrum acquisition, Bloomberg reported on its website on July 22, quoting sources.
Bharti is yet to confirm the news. "The company has a diverse financing portfolio and it keeps evaluating various financing options from time to time including ECBs [external commercial borrowers], bank loans, bonds and new lines of credits,” a Bharti spokesperson said in an email. “However, we will be unable to comment on any specific financing plan of ours."
The report was nonetheless welcomed by loans bankers, who have been grappling with a drought of Indian corporate assets this year, especially on the capital expenditure side.
“It is well rated and has scarcity value as well,” said a Singapore-based banker active in Indian loan syndications. “If the loan does come, it is going to be tightly priced.”
While he did not specify a price range — considering no details such as tenor are available on the potential financing — he reckoned it was likely to be around the levels seen on Reliance Jio’s 2014 refinancing loan, which consisted of a $1bn 5.5 year facility A and a $500m seven year facility B. Facility A pays a margin of 135bp over Libor, while facility B pays 151bp. Those that joined at the top level available in general, with minimum commitments of $25m, earned fees of 105bp for the 5.5 year and 130bp for the seven year.
“Though they are fairly differentiated in terms of credit, the market has moved [downward] since the Jio loan, so it could well be somewhere in that region,” he said. Reliance Jio parent Reliance Industries is rated Baa2 by Moody’s, while Bharti Airtel is rated Baa3.
Alternate options
Loans would appear to be a natural choice for telcos as they offer plenty of advantages when it comes to raising money, said a banker at an international lender.
“They could take the syndicated loan route or the rupee bonds route or USD bonds. Some of them are selling assets too,” he said. “Ultimately it’s about the swap costs and diversifying funding sources, so it depends on what they have already. For capex related funds, loans from their relationship banks offer them a lot of flexibility in terms of covenants [such as prepayment, refinancing options].”
Intense competition among large arranging banks means companies can tie in funds at cheap rates, use of proceeds notwithstanding, as long as the borrowing is senior debt and pari passu, he said.
This may change if the US Federal Reserve begins to raise interest rates in September, he added, so companies would do well to move fast.
Airtel isn’t the only company bankers are hoping to get business from. Idea Cellular, a heavyweight in India’s telecoms industry, was the top bidder for spectrum, spending about $4.8bn on it this year, according to various reports.
The company was mulling an overseas loan and had applied for approval from the Reserve Bank of India, said a third banker. But they were said to have entered a deferred payment arrangement with the government at a low rate, so the deal did not materialise.