Investor confidence in the telecom sector remained low during 2012 on account of policy and regulatory uncertainties. Operators had a difficult time sourcing funds from foreign institutional investors. According to the Department of Industrial Policy and Promotion, foreign investment in the sector dropped from $1.9 billion during April-September 2011 to $43 million during the corresponding period in 2012. Banks were also not very forthcoming in lending to operators, which already have a huge debt burden. As per market estimates, at end-2012, the sector?s cumulative debt stood at Rs 2,000 billion. Most operators had to scale down their capital expenditure and maintain low costs while managing operations.
Moreover, companies aiming to enter the capital market through an initial public offering (IPO) had to put their plans on hold due to volatile market conditions. Sistema Shyam TeleServices Limited (SSTL) and Vodafone India postponed their IPO plans. Vodafone India is likely to go ahead with the public listing in 2013, but SSTL has reportedly postponed its plans indefinitely as it is still awaiting a response to its curative petition. Further, Reliance Communications? (RCOM) plans to reduce its debt by listing its undersea cable business on the Singapore Stock Exchange did not materialise. The operator was planning to divest a majority stake, about 75 per cent, in FLAG Telecom, a unit of its undersea cable business ? Reliance Globalcom. However, the Rs 60 billion IPO had to be withdrawn due to adverse market conditions.
While Bharti Airtel listed its tower arm, Bharti Infratel, the IPO failed to generate significant investor response. The company raised Rs 41.18 billion through the listing. Bharti Airtel put 146 million new shares and 42.67 million shares of existing investors such as Temasek, Goldman Sachs, Anadale and Nomura on the block at a price of Rs 210-Rs 240 per share. The operator appointed the Bank of America Merrill Lynch, JP Morgan, Barclays Bank, Standard Chartered Bank, Deutsche Bank, HSBC, UBS, Kotak Mahindra and Enamfor to provide consultancy services for the IPO.
The issue attracted bids for 208.49 million equity shares against 160.56 million shares offered in the main book building process after allocating 28.9 million shares to anchor investors. The shares were sold at Rs 220 each to investment funds while retail investors were offered shares at Rs 210 per share. The company raised around Rs 6.52 billion from 18 anchor investors, who paid Rs 230 per share. The portion reserved for qualified institutional buyers was oversubscribed 2.84 times. The IPO, priced near the lower end of the indicative range, did not generate significant interest from retail investors and was supported mostly by overseas institutional buyers.
Recently, Viom Networks, a joint venture (JV) between Tata Teleservices Limited (TTSL) and a consortium led by Quippo, a Srei Group enterprise, also showed interest in listing its shares on the bourses in 2013.
tele.net takes stock of the key sector developments on the financial front in 2012?
Equity deals
In January 2012, Japan-based NTT Communications Corporation acquired 74 per cent stake in Netmagic Solutions Private Limited for Rs 6.5 billion. Netmagic Solutions is a Mumbai-based data centre solutions provider and operates seven data centres across four cities in India.
During the same month, Sequoia Capital acquired a minority stake in Indian cloud-based solutions provider Knowlarity for Rs 350 million. Knowlarity provides voice and data communication services over the internet to companies in India and Indonesia. With this round of investments, the start-up has initiated the expansion of its services to other emerging markets, including Thailand and Brazil, besides scaling up its research and development facility in India.
Hyderabad-based Way2Online Interactive India Private Limited, operator of person-to-person (P2P) messaging portal Way2SMS.com, acquired 100 per cent stake in 160by2 through an all-cash deal. 160by2 is a P2P business unit of enterprise messaging and advertisement-based free SMS services provider, SMSCountry. However, in May 2012, Way2Online Interactive India was acquired by a mobile media company, ValueFirst, through an all-cash deal.
In February 2012, the Bahrain Telecommunications Company (Batelco) sold its entire 42.7 per cent stake in S Tel for $175 million. The move marked the first exit of a foreign investor from the Indian telecom sector, following the Supreme Court?s 2G licence cancellation. Batelco sold its stake to Indian partner Sky City Foundation Limited at the price which it had paid to acquire its stake in S Tel in 2009.
During the same month, Piramal Healthcare acquired 5.5 per cent stake in Vodafone India for $618 million. The company bought the shares of Essar Telecommunications Holding Limited, which marked the complete exit of Essar from the Vodafone JV. The acquisition doubled Piramal Healthcare?s stake in the company, which now stands at 11 per cent. Piramal Healthcare raised Rs 18 billion through commercial papers with 30-day and 75-day maturities, to partially fund its stake acquisition in the operator.
In February 2012, RCOM reached the final stage of its tower sale deal with private equity players Blackstone and the Carlyle Group. Both players signed a term sheet to buy up to 95 per cent stake in RCOM?s tower arm, Reliance Infratel. The company owns about 50,000 towers across the country. The deal, which is estimated to be valued at Rs 150 billion-Rs 200 billion, would be concluded in 2013.
In May 2012, Bharti Airtel signed an agreement to acquire 49 per cent stake in Qualcomm Asia Pacific?s Indian broadband venture for $165 million. As per the agreement, Bharti Airtel acquired 13 per cent equity stake each from the Global Holding Corporation and Tulip Telecom, and the remaining stake by subscribing to fresh equity issued by Qualcomm. This will allow the operator to launch broadband wireless access services in four circles where Qualcomm won spectrum in the 2010 auction. Further, the agreement states that once commercial operations are launched, subject to certain terms and conditions, Airtel will assume complete ownership and financial responsibility for the venture by end-2014.
Meanwhile, Bharti SoftBank Holdings (BSB), a JV between Bharti Airtel and Japan-based SoftBank Corporation, acquired a 49 per cent stake in Gurgaon-based value-added services (VAS) company Y2CF. BSB has the option to acquire the remaining stake at a future date. The deal size was estimated to be around Rs 400 million.
In July 2012, FINO, a business and banking platform provider, acquired Nokia Mobile Payment Services? prepaid mobile payment business in an all-cash deal. This allowed FINO to move beyond banking services to the payments domain, directly engaging with customers. FINO has formed a new entity, Alpha Payment Services India Private Limited, to manage the newly acquired business. The company will provide services such as money transfer, utility bill payment, mobile and DTH recharge under the Takatak Money brand. According to the deal, Nokia Mobile Payment Services? technology (software), agents and customer base have become a part of the new entity.
In August 2012, Bengaluru-based mobile advertising company InMobi acquired UK-based mobile application management firm Metaflow Solutions. According to the deal, Metaflow?s team has relocated to InMobi?s London office. Metaflow offers low-cost channels for providing applications to independent original equipment manufacturers and operator application stores. InMobi has been looking to acquire mobile application companies since securing funds of $200 million from Japan-based telecom operator SoftBank in September 2011. It recently acquired San Francisco-based MMTG Labs, which provides search, discovery and monetisation solutions to application developers.
During the same month, Chandigarh-based VAS provider Altruist Technologies Private Limited (ATPL) acquired Sweden-based Teligent Telecom in a transaction valued at Rs 880 million-Rs 950 million. Teligent Telecom is a supplier of infrastructure solutions and VAS to telecom carriers. The acquisition was financed through internal accruals and debt. ATPL has a presence across Southeast Asia, the Middle East and Africa, and the acquisition will help strengthen its presence in Europe, North Africa and the US.
In October 2012, Tech Mahindra acquired 51 per cent equity stake (on a fully diluted basis) in the Bharti Group-owned mobile VAS provider Comviva Technologies. The deal was valued at Rs 2.6 billion. Tech Mahindra made an upfront payment of Rs 1.25 billion while the remaining Rs 1.35 billion will be paid over a period of five years based on Comviva?s performance. The acquisition saw Sequoia Capital and Cisco, which held 9 per cent and 6 per cent stakes respectively in Comviva, exit the company. Currently, the Bharti Group holds 20 per cent stake in the company, while WestBridge Capital?s stake stands at 8 per cent. The company has been renamed as Mahindra Comviva.
During the same month, Norway-based Telenor and its Indian JV partner Unitech settled their long-standing dispute regarding the transfer of Uninor?s assets. Unitech agreed to sell its 33 per cent stake in Uninor to Telenor for a nominal amount. Despite the stake sale, Unitech will receive its proportion of share when Department of Telecommunications refunds the entry fee paid by Uninor for acquiring spectrum in 2008. In September 2012, Telenor had settled Uninor?s bank loans of Rs 98 billion after the lenders declined Uninor?s request for extension of the loan repayment period. These short-term loans from Indian and international banks were fully guaranteed by Telenor.
Telenor signed an agreement with Lakshdeep Investments & Finance Private Limited to form an Indian JV, Telewings Communication Private Limited, which bid in the 2G spectrum auction in November 2012. Lakshdeep Investments & Finance Private Limited is controlled by Sun Pharma?s executive director, Sudhir Valia. Lakshdeep contributed about 26 per cent equity in the JV. Telenor has operational control of the JV.
During November 2012, Japan-based NTT DOCOMO decided against exercising its call option to increase its stake in TTSL. However, DOCOMO may reconsider increasing stakes in TTSL in 2013-14 after seeking further clarity on regulations in the sector. In 2008, DOCOMO paid $2.7 billion for a 26 per cent stake in TTSL and purchased two call options to increase its stake to 35 per cent in 2012 and to 51 per cent in early 2014. Currently, the Tata Group holds about 60 per cent stake in TTSL.
In December 2012, Matrix Cellular?s promoters and PE investor CX Partners initiated talks to sell a majority stake in the company. They are planning to raise around Rs 6 billion by divesting over 50 per cent stake in the company. Investment banks Grant Thorton and Avendus have been appointed to facilitate the transaction. CX Partners currently holds 33 per cent stake in the company, while the remaining is held by the promoters.
Debt financing
In January 2012, SSTL raised a loan of Rs 12.8 billion from a consortium of banks led by Deutsche Bank. The amount was raised through non-convertible debentures and was used to fund the operator?s expansion plans. The debt has been partially secured by the guarantee of Russia?s leading bank, Sberbank, and is repayable by 2019.
During the same month, RCOM raised a loan of Rs 61.25 billion from a consortium of Chinese banks to refinance its outstanding foreign currency convertible bonds (FCCBs). RCOM is required to repay the debt in seven years at an interest rate of about 5 per cent. The Industrial and Commercial Bank of China, China Development Bank and the Export Import Bank of China were among the key lenders. RCOM?s FCCBs worth Rs 58.25 billion were redeemed in March 2012 when the company made payments to Deutsche Bank AG, London branch, the principal agent for the FCCB issue. The FCCBs were issued in February 2007 and were due for redemption on March 1, 2012.
In February 2012, Tulip Telecom raised Rs 2.5 billion through mezzanine funding from an unnamed financial institution. The deal helped the company achieve financial closure for its Rs 9 billion wholly owned subsidiary, Tulip Data Centre Private Limited, which is based in Bengaluru. After acquiring the Bengaluru data centre in 2011 for Rs 2.3 billion, Tulip raised Rs 2.5 billion of long-term debt, and has since been looking for PE finance to partially meet the remaining fund requirement of Rs 4.2 billion.
In August 2012, Tulip Telecom raised $50 million through FCCBs. The funds were to be used to repay Tulip?s previously issued FCCBs worth $144.69 million due for redemption in August 2012. However, these FCCBs, issued in June 2007, are yet to be redeemed.
In November 2012, GTL Infrastructure Limited completed the restructuring of FCCBs worth $320 million, after receiving the required approvals from the company?s bondholders and the Reserve Bank of India. The zero-coupon bonds were restructured for five years. Of the $320 million of bonds, those worth $112 million have been converted into equity at Rs 10 per share.
