Cellular telecom companies are negotiating with banks for term loans as financial institutions have shied away from funding their projects without corporate guarantees. Some companies have given banks the mandate to raise rupee funds, despite the higher interest costs, and more are likely to follow suit. The banks are not insisting on any corporate guarantee.
The companies, which are talking to banks for rupee loans, are Tata Communications and Escotel Communications. Birla-AT&T Communications, BPL-US West and JT Mobile are also in discussions with banks, sources say.
The interest rates on loans from banks are expectedly high and may be at least 2-3 percentage points more than the rate on FI loans. This would mean an interest cost in the 22-24 per cent range. The Industrial Development Bank of India loan for the Birla-AT&T project had been sanctioned at 20.5 per cent, bankers say.
Birla-AT&T has initiated talks with State Bank of India for rupee debt in the wake of IDBI's insistence on corporate guarantees for a Rs 232 crore loan sanctioned earlier. A spokesperson for Birla-AT&T said the talks with SBI were just an option the company was exploring. The company holds licences to provide cellular services in Maharashtra and Gujarat.
Both the promoters of the project, US telecom giant AT&T and the A V Birla group of companies, are averse to providing guarantees to the loan. "The promoters were not comfortable with the recourse financing package that IDBI was putting together," a source said. Recourse financing package envisages a corporate guarantee by the promoter.
Tata Communications, the cellular licensee for Andhra Pradesh, has decided to avoid the FI route for rupee loans and has mandated Bank of America to raise the entire debt component of the project. Bank of America will syndicate a total of $120 million -- both in rupees and foreign exchange -- in the next few weeks.
Sources said Canara Bank and ANZ Grindlays Bank would be among the banks which will raise the rupee part of the loan. ANZ has a mandate for Rs 91 crore and, according to unconfirmed reports, Canara has a mandate for Rs 60 crore. Escotel Commu-nications is raising rupee finances -- reported to be in the region of Rs 100 crore --- through Infrast-ructure Leasing & Financial Services and American Express.
The Escorts group company -- which has licences to provide cellular services in Uttar Pradesh (West), Haryana and Kerala -- has given Chase Manhattan the mandate to arrange a $115 million foreign exchange loan for the project. The loan is backed by guarantees provided by the company's foreign partner, First Pacific of Hong Kong.
BPL-US West Comm-unications is talking to Bank of America and Citibank to arrange foreign exchange loans. The Industrial Credit & Investment Corporation of India is appraising the company's business plans in Maharashtra, Tamil Nadu and Kerala. But banking sources say BPL-US West may also seek funds from banks.
JT Mobile -- the cellular licensee for Karnataka, Andhra Pradesh and Punjab -- is said to be in talks with ABN AMRO bank and SBI Capital Markets for rupee funding of debt.
Sources say cellular companies are opting for bank funding, despite the higher costs, mainly for two reasons. First, banks are willing to arrange financing on a totally non-recourse basis for projects with strong promoters. Since promoters like AT&T and the AV Birla group are unwilling to provide corporate guarantees, the bank route is more attractive. Secondly, finance executives of the companies believe that banks will disburse loans faster than FIs.
