Birla At & T To Raise More Forex Debt For Cellular Projects

Birla AT&T Communications Ltd (BACL) is planning to increase the amount of foreign exchange debt it will access for its Maharashtra and Gujarat cellular projects.

It may access more than the Rs 610-odd crore that it initially planned to raise through external commercial borrowings (ECBs).

This follows the governments fiscal incentives package announced last fortnight in which it decided to increase the ECB-ceiling from 35 per cent to 50 per cent of the project cost for telecom service businesses.

Another factor that induced the company towards foreign debt is the reluctance of domestic lenders FIs and banks to lend without corporate guarantees on rupee term loans.

 

When a promoter company provides a corporate guarantee to a loan, it takes on the liability of the debt on its balance sheet.

BACL had initially planned for a project cost of $485 million (Rs 1,750 crore) - to be financed through $216 million (Rs 780 crore) of equity and $269 million (Rs 970 crore) of debt.

Of the debt, Rs 612 crore was to be financed through foreign currency debt from overseas lenders and the remaining Rs 358 crore from rupee sources.

The company had given the mandate to raise the foreign exchange part of the debt to Bank of America and Toronto Dominion of Canada.

The Rs 358 crore rupee loans were to come from financial institutions and banks.

However, the debt deal with Industrial Development Bank of India (IDBI) soured after the FI insisted on corporate guarantees for a Rs 234 crore loan.

Both of BACLs promoters - the A V Birla group and AT&T Corp of the US - were unwilling to provide the guarantees.

After this, Birla AT&T Communications negotiated with State Bank of India (SBI) to raise the entire rupee debt.

The bank was reportedly willing to extend funds without guarantees.

Now that the government has decided to raise the ECB ceiling, BACL is examining the option of raising its foreign exchange debt from Rs 612 crore.

This has two advantages: one, we get funds at a lower cost and two, the quantum of rupee funds from Indian banks comes down and their risk is reduced correspondingly. They (Indian lenders) will then be comfortable lending without guarantees, a company executive said. Foreign lenders have been willing to lend without guarantees.

BACL has not taken a final decision on the amount by which it will raise its foreign debt.

This will depend on the timing of the governments notification on its decision. Also, we need to see whether the department of telecommunications will change a clause in the tender agreement according to which the foreign debt a company can raise is limited to a maximum of twice its foreign equity, the executive said.