Pan-Indian mobile telecoms operator Videocon Telecommunications closed the largest project financing ever for a greenfield operator in India in August 2010. The SBI-led Rs72 billion ($1.6 billion) financing came solely from Indian lenders, and crowded out a proposed export credit agency fin­anc­ing. These lenders had to work around the regulatory and logistical challenges of funding a network roll-out across the world’s second most populous country.

Videocon Telecommunications is part of the Videocon group, and a subsidiary of Videocon Industries, an electronics, appli­ances, technology and industrial conglom­erate. Its original name was Datacon, and it was founded as a wireless GSM op­erator. India has a large potential sub­scriber base, but its operators, while they have often been successful overseas, enjoy low average revenue per user levels in their home market.

India’s 2008 mobile license auction div­ided the country into 22 circles, organ­ised into four sub-groups, and ended up allo­cating 122 licenses to a double-digit num­ber of operators. Videocon won a uni­fied access services licence in every circle ex­cept for the Punjab, and picked up a licence in this circle by buying HFCL Infotel.

The auction led to a highly diverse com­petitive landscape in India and a large num­ber of operators. It subsequently led to a corruption probe that has convulsed India and involved several of India’s captains of industry answering questions from the coun­try’s Central Bureau of Investigation. But it has also sparked a boom in investment in India’s telecoms infrastructure.

Videocon started rolling out its Rs144 billion network in October 2009, and has a target completion date of March 2013. By then it plans to have 100% geographical coverage in the metro subgroup (Delhi, Kolkata, Mumbai), 85-95% coverage in the A subgroup (Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Tamil Nadu), 55-85% coverage in the B subgroup (Haryana, Kerala, Madhya Pradesh, Punjab, Rajasthan, UP (East), UP (West), West Bengal) and 45-70% in the C subgroup (Assam, Bihar, Himachal Pradesh, Jammu & Kashmir, North East, Orissa).

The sponsor mandated SBI Capital as financial adviser and mandated lead arranger for debt facilities equivalent to half the total funding requirement, and would fund the rest of the new network’s cost with equity. Lenders had to contend with the sprawl of licenses, diverse competitive landscape, inflationary pressures on equipment costs, and government concerns about the use of a Chinese equipment supplier, Huawei, which joined with Nokia Siemens to deliver the network.

Then, just as SBI launched syndication on the deal, the Reserve Bank of India shifted the reference rate for bank lending in the country from the prime lending rate to a base rate-based system. Nevertheless, the deal attracted another 17 lenders: State Bank of India, Bank of Baroda, Bank of Maharashtra, Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Over­seas Bank, Life Insurance Corporation of India, Oriental Bank of Commerce, Punjab National Bank, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Patiala, UCO Bank, Union Bank of India, United Bank of India, and Vijaya Bank.

Originally, SBI had planned to raise $330 million of its debt requirement, roughly a fifth of the total, with an export credit agency tranche, but as the effects of the crunch lingered, and as the sponsor set an aggressive timeline for financial close, the adviser suggested raising the total requirement in the Rupee market, with a provision that it might be refinanced with an ECA tranche at a later date. Raising the additional Rs14 billion doubled the length of time it took to complete syndication – from four months to eight.

The financing benefits from the pres­ence both of a standard debt service reserve and a trust and retention account (TRA). The TRA benefited from revenues brought in by thousands of distributors in each circle, and used a series of sub-accounts for each circle’s revenues and expenditures that recognised that some, but by no means all, operating expenses and capital expenditures could not be centralised. The surplus from these sub-accounts was then pooled centrally for the benefit of lenders, the first time the Indian telecoms market has seen an arrangement of this type.

The sponsors, Videocon Industries and Videocon International Electronics, also pro­vide considerable support over the loan’s 10-year tenor, which includes a 3.5-year grace period. They provide lend­ers with protection against cost overruns, some revenue shortfalls and promises to help maintain the debt service reserve. In return, lenders permitted a slightly higher debt-to-equity ratio, of 1.25x compared to the 1x for the rest of the loan’s life, until the end of March 2011. The sponsor will also be allowed to bring in a strategic equity investor at a later date.

Videocon’s network roll-out is an enor­mous undertaking, and its debt requirements stretched the capabilities of the Indian syndicated loan market. But if the country’s telecoms sector can endure the current bout of political uncertainty, the financing bodes well for other capital-hungry operators. 

Videocon Telecommunications Limited
Status: Closed 30 August 2010
Size: Rs144 billion
Location: India
Description: Financing for greenfield pan-Indian mobile GSM operator
Grantor: India’s Department of Telecommunications
Sponsor: Videocon Group
Equity: Rs72 billion
Debt: Rs72 billion
Sole lead arranger and financial adviser: SBI Capital
Participants: State Bank of India, Bank of Baroda, Bank of Maharashtra, Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Life Insurance Corporation of India, Oriental Bank of Commerce, Punjab National Bank, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Patiala, UCO Bank, Union Bank of India, United Bank of India, Vijaya Bank
Lender legal adviser: Luthra & Luthra
Technical consultant: KPMG
Equipment suppliers: Nokia Siemens and Huawei