According to senior bankers, pricing of the ECB will not be affected by the rating downgrade announced by Standard & Poor's on Friday. "The pricing at 275 basis points above Libor remains the same. The loan agreement will be signed in a couple of days," said sources with the lead banks.

In the absence of a syndication, the rating downgrade will not be a problem, sources said. The debt is structured as a refinance loan and disbursal is tied to Telco buying back its overseas papers for the equal amount, sources said.

Telco is raising the loan to buy back a portion of its $200-million Yankee bonds issued in August, 1997. As a result, the loan will not cause any addition to Telco's existing foreign-exchange liability. The exercise is meant to reduce the average cost of Telco's forexdebt as well as reduce the margin at which its bonds are quoted abroad.

According to the original plan, Telco was to go in for an international loan syndication for $30 million with a greenshoe option for a similar amount. The syndication was abandoned owing to poor response from other banks. With the plan now scrapped, the greenshoe option is unlikely to materialise.

At present, Telco's Yankee bonds are being traded at a spread of 500-400 basis points above Libor, while its issue price was around 200 basis points. By buying back the bonds at 400 basis points and replacing it with the new loan contracted at 275 basis points, Telco will have reduced its original borrowing cost by 200 basis points. This, in effect, amounts to having cut the cost of its forex debt to almost Libor from the previous 200 bps above Libor.

By doing this, Telco has followed the footsteps of Reliance, which recently raised a $40-million 7-year foreign loan to buy back a portion of its $150-million 10-year Yankee bond issued inSeptember 1995. Many other corporates with large foreign-loan component are also planning to buy back their debt paper from overseas debt market. Spic recently announced similar plans, while ICICI had already bought a part of its Yankee bonds, availing of the RBI permission to institutions to buy back their papers.