MUMBAI, February 5: Cellular services operator, Birla-AT&T, a 51:49 joint venture between the AV Birla group and AT&T, is looking at a fresh infusion of funds of around Rs 400-500 crore. The proposal was discussed at the company's board meeting held on Thursday. The funds would be a combination of equity and debt. Sources surmised the possibility of a third partner entering the venture.To raise the requisite funds, Birla-AT&T is in talks with leading investment bankers. In fact, most of the investment bankers pitching for the account made presentations to the group chairman Kumarmanagalam Birla on Wednesday. Some of the contenders were, Union Bank of Switzerland (UBS), Morgan Stanley, BankAm, Goldman Sachs, Credit Lyonnais and Deutsche Bank. The other executives present in the meeting were senior group-director Mahesh Bagrodia, Rajan Mathews CEO of cellular venture. Sources said few AT&T officials also attended the meeting. A formal decision on the appointment of an investment bank is expected to beannounced soon. Birla-AT&T's capital base is Rs 813 crore with a debt to equity ratio of 1:1.25. Earlier this year, Birla-AT&T contracted a $283 million loan lead managed by BankAm and Toronto Dominion Bank with UBS as the financial advisor. The foreign currency component in the loan worked out to nearly $230 million, say sources.
"Equity infusion will improve the debt-equity ratio", said industry sources, who made a veiled suggestion that a loan rescheduling may also be on the cards. A loan rescheduling, if any, may hinge on the cellular licence tenure, now fixed at 10 years. There is a proposal before the Telecom Regulatory Authority of India to have this extended to 15 years.
Sources said the debt-equity ratio may remain unchanged after the infusion of funds. Birla-AT&T holds the license for cellular services in Gujarat, Maharashtra and Goa circles.
According to analysts, the revenue projections has been affected largely because of less than expected pick up in air-time usage as also the cap onrentals at Rs 156 per month.
Insight
In license-tenure lies the key
For the Gujarat circle (licence fee payable over 10 years is Rs 1,794.10 crore) Birla-AT&T would have to pay Rs 163.1 crore annually for the first five years and Rs 195.72 crore annually for the second. For the Maharashtra circle (licence fee payable over 10 years Rs 1,657.7 crore) it would have to pay Rs 150.7 crore annually for the first five years and Rs 180.84 crore annually for the second.
Initially, the small subscriber base is a problem, as it has to bear the cost of licence fees, equipment costs, interest and developmental charges, as the fixed cost per subscriber is inversely proportional to the number of subscribers.
Even though capital infusion in the current scenario is inevitable, lenders could be averse to funding if the license period is not extended and uncertainty regarding the realisation of projected revenues prevail.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
