Tata SA arm to raise $1 billion in debt

South African telecommunications company Neotel, in which Tata Communications (formerly Videsh Sanchar Nigam) holds a 56 per cent stake, is planning to raise $1 billion mostly through debt for its expansion plans.

The company, which is the second national operator for fixed lines in South Africa, has already initiated discussions with bankers, including those from India, according to sources close to the development.

Neotel is looking at raising funds mainly by way of debt, even though it might also look at part funding through equity-linked modes. The company would opt for equity-linked mode, for the remaining part of the loan that cannot be raised through debt.

FUND PLAN

In June 2008, Tata Communications had increased the stake in the company to 56 per cent from the earlier 26 per cent.

In 2005, it had raised around $250 million through a bridge loan from a consortium of South African financial institutions.

In 2005, it had raised around South African Rand 2.2 billion (around $250 million) through a bridge loan from a consortium of South African financial institutions. Separately, the company had plans to make a total of Rand 11 billion investments in telecom infrastructure.

The consortium of Nedbank Capital, Investec Bank and the Development Bank of South Africa financed around Rand 1.4 billion, while Industrial Development Corporation of South Africa provided the remaining Rand 600 million.

Neotel is in talks with the same firms for raising the $1 billion, while this time it is also talking to certain global companies and Indian banks. Tata Communications, a major stakeholder in the company, is in talks with Indian banks, sources said.

A Neotel spokesperson said, “Neotel has no comments to offer at this point in time.” The company intends to use the funds for its network rollout across South Africa and provide both fixedline and wireless telecommunication services. Neotel also offers international voice and data transit services for other telecommunications operators.

Neotel already has around 1,300 km optic fibre cable network across six main metropolitan areas in the country. This infrastructure was purchased from Transnet, another telecom operator, earlier this year.

In June 2008, Tata Communications had increased the stake in the company to 56 per cent from 26 per cent. The company had informed the Bombay Stock Exchange (BSE) of the acquisition of the additional 30 per cent stake, while choosing not to divulge the acquisition amount. South Africa’s Nexus has a 19 per cent stake, CommuniTel and two telecom consortiums have stakes of 12.5 per cent each in Neotel.

Even though South Africa is the fourth fastest growing market in the world, it is still one of the most under penetrated countries with 80 per cent of the population having no access to mobile telephony.

Indian companies such as Bharti Airtel and Reliance Communications had tried to foray into the market through the unsuccessful attempt of acquiring MTN Group.