Syndication for Connect Austria's Eu690 million debt signed on October 22, marking the country's largest project financing to date. This achievement notwithstanding, the deal was described by a number of insiders as ?difficult'. With the telecoms hey-day over and liquidity sparse in all sectors, competition for debt amongst telecommunications companies is fierce. Up against tranches issued by Wind of Italy and Amena of Spain, Connect Austria only managed a back seat and co-ordinating banks West LB, DrKW and JP Morgan made the decision to reduce the debt: initially Connect Austria had hoped to raise Eu1 billion.

The limited recourse financing breaks down into an Eu620 million 8-year term loan and an Eu70 million revolving credit. Eu545 million refinances existing debt, with the remaining funds used to commence rollout of a 2.5G to 3G network. Connect Austria, which trades under the name ONE, secured one of the six licenses in Austria's UMTS auction held in the fourth quarter of 2000. It was already an established player in the country's mobile telecoms market.

Employing a tactic proven successful for other telecommunications companies this year, mandated lead arranger fees and status were offered to banks joining in a first stage syndication. Royal Bank of Scotland, BNP Paribas and HypoVereinsbank took this up. Final allocations at this level left West LB with Eu100 million, DrKW with Eu100 million, JP Morgan with Eu100 million, Royal Bank of Scotland with Eu100 million, HypoVereinsbank with Eu90 million and BNP Paribas with Eu75 million.

General syndication attracted a further five banks ? Den Norske Bank, Erste bank, Hamburgische Landesbank-Girozentrale, Nordea and Sumitomo. West LB acted as documentation bank. The high profile of German banks was simply put down to their strong presence in Austria. ?Pricing was not a problem and is in line with other recent telecommunications deals,? claims a banker that worked on the deal. Pricing starts at 250bp and ratchets down to a low of 75bp according to performance.

The difficulties alluded to by some insiders centred on general lender wariness of new telecommunications projects, with their massive costs and untested technology. ?Once the full costs of UMTS licenses and network roll outs were realised, everyone panicked,? says an industry player. ?Some funding avenues were effectively cut off.? Following this, lenders started becoming picky about which telecommunications deals they would back. Not wanting to spread themselves too thinly or have too much perceived technology risk on their books, the trend became to back a small number of major deals. Shrinking global liquidity has exaggerated this trend.

Despite the adverse market the deal got done. Final closure has largely been ascribed to the strength of the sponsor profile, comprised of VIAG (20%), TeleNor (17.45%), Tele Danmark (15%), Orange (17.45%), Orange (17.45%), RHI (20.1%) and Constantia Privatbank (10%). Its mobile operations have 97% coverage throughout the country and the number of subscribers has risen from 0.5 million at the end of 1999 to over 1.3 million by the summer of 2001. IT consultancy, Logica has recently been appointed to migrate all customers from the current legacy billing system to Convergys Corporation's Geneva Activate Revenue Management software. It is claimed that this will simplify the back end system, allowing the company to expand more efficiently.

In addition, despite being considered a fringe market in European terms, Austrian telecommunications has some peculiarities that lend it allure. The UMTS auction was described as disappointing for the government, with the six licenses bringing in only Eu831 million in total. For the operators, however, the cheap price means they are less saddled with debt when commencing roll out than many of their European counterparts, which in turn provides comfort for lenders. Moreover, a government imposed obligation for UMTS operators to achieve 25% coverage within Austria by 2003 and 50% by 2005 is likely to encourage co-operation between them. This could include tactics such as sharing of antennae or frequencies.