Swisscom Freezes Fresh Investments In India

Swisscom, the joint venture partner investing in Sterling Cellular, has frozen all fresh investments in India until the fortunes of the domestic cellular telecom industry look up. The $12-billion Swiss telecom major was to hike its stake in Sterling - the cellular licensee in Delhi, UP (East), Haryana and Rajasthan - from 33 per cent to 49 per cent.

Swisscom's deal with the Essar group was estimated to be worth around $80 million (Rs 320 crore), but it is unclear exactly what portion of this amount would actually come into Sterling Cellular. Erich Buerkler, chief executive officer of Sterling Cellular, however, did not set a timeframe as to how long Swisscom would adopt its `wait-and-watch' attitude.

 

By taking its decision, Swisscom becomes the first telecom multinational company to do so in face of mounting losses in India. The cellular services industry - comprising 17 operators - is estimated to be making a cash loss of some Rs 400 crore a month; much more than initial estimates.

Said Buerkler: "Under the present conditions, our business cases do not make any sense. Unless some of the demands of the cellular industry are met, it is going to be difficult." Swisscom, whom Buerkler represents, has pumped in its part of Rs 650 crore paid-up equity capital in Sterling Cellular.

The Sterling Cellular CEO said it was almost impossible to launch the syndication exercise for the company's debt requirements. According to its initial estimates, Sterling needs debt to the tune of some Rs 900 crore to finance cellular networks over the first five years.

Buerkler said that the company might resort to domestic debt markets in light of the depreciating rupee. This marks a reversal of the company's earlier plans to syndicate Rs 900 crore in debt from foreign banks. UBS, Credit Lyonnais and ANZ Investment Bank had even underwritten the loan facility.

Early last year, the Sterling management had differences with bankers over pledging shares as collateral for the syndicated loan. Sterling Cellular felt that assignability of licences together with strict covenants was good enough as a collateral. Now, the company has decided to tap the domestic rupee debt market with tax-free infrastructure bonds.

Although Swisscom owns only 49 per cent stake directly in Sterling Cellular, it is believed to have majority equity through a presence in a nominee Indian company. Sterling Cellular, the cellular licensee in Delhi, controls Aircell Digilink which holds the operating licence in Haryana, Uttar Pradesh (East) and Rajasthan. The former owns 80 per cent stake in the latter.

Equity investments of some Rs 650 crore have already been capitalised, while the Rs 900 crore will meet the project costs of some Rs 1,550 crore for five years. The company tied up Rs 350 crore in vendor credit from Siemens.