Crisil rates first partially guaranteed issue in telecom sector

THE CREDIT Rating Information Services of India (Crisil) has awarded AA plus (so) (double A plus structured obligation) rating to the proposed Rs. 265 crore structured debt obligation (SDO) issue of Bharti Mobile (BML). The rating is based on the credit enhancement provided through cash collateral, part guarantee by Bharti Televentures (BTVL) and a partial guarantee by International Finance Corporation (IFC), Washington (Rated AAA by Standard & Poor's), and supported by a structured payment mechanism to facilitate timely payment of debt obligations.

The proposed issue has a 10-year tenure comprising semi-annual interest and principal repayments, with the principal repayments commencing at the end of the sixth period (3rd year) from the date of issue. There are a total of 20 payment periods during the tenure of the bond. The rating is based on the strength of the credit enhancement provided through:

Cash collateral: BML has provided cash collateral support to the SDO equal to two semi-annual interest payments. If BML defaults on its payment obligation to the debenture holders in any of the first two payment periods, the cash collateral will be used to fund the SDO payment reserve account (SPRA). Further, if funds are available in the cash collateral account at the end of second interest payment, an amount equivalent to the third interest payment will be maintained in the cash collateral account till the end of payment period three. These funds will be used to fund the SPRA if BML is unable to fund the SPRA by the due date for the third interest payment.

BTVL guarantee: BTVL has given an unconditional and irrevocable guarantee for the third interest payment. If BML is unable to fund the SPRA by the due date for the third semi-annual interest payment and no funds are available in the cash collateral account to fund the SPRA, then the debenture trustee can call upon BTVL to fund the SPRA for the full value of the ensuing interest payment before the due date of payment.

Partial guarantee by IFC, Washington: IFC's partial guarantee has two components: (a) a rolling guarantee for one semi-annual interest payment for the payment periods four through six in respect of the debentures and (b) a back-ended guarantee covering the entire principal and interest thereon during the last 14 semi-annual instalments.

The structured payment mechanism built in for facilitating timely payments of the debt obligations on the instrument stipulates that BML would deposit, at the end of every month, 20 per cent of the amount equivalent to the next occurring semi-annual interest and/or principal payment on the instrument, into a designated SPRA, commencing from the date of allotment and ending on T minus 30 days (T being the due date of payment on the SDO). In case SPRA is not funded to the full extent by T minus 30 days, the Trustee would have the right to call upon the cash collateral or the BTVL guarantee as per the credit enhancement structure for the first three payment periods.

For payment periods four to twenty if the SPRA is not funded to the full extent by T minus 30 days, the Trustee will have the right to invoke IFC's partial guarantee by T minus 20 days and in such a case, IFC shall have to fund the SPRA for the full value of the ensuing interest and/or principal payment before the due date of payment, as per the IFC guarantee.

The structure provides the right for an early redemption of the SDO both to the trustee and the IFC. While the trustee may call for an early redemption of the SDO in case BML is unable to make the payments as per the terms of the Debenture Trust deed, IFC would have a right to call for an early redemption in case certain covenants and conditions are not met by BML. In the case of early redemption, the IFC would redeem the outstanding guaranteed amount on a pre-determined formula on a net present value (NPV) basis. This will constitute full and final payment on the instrument as defined in the Debenture Trust deed and will not constitute as default on the instrument.

In addition to the credit enhancement structure, the rating also factors in the qualitative aspect of the guarantee, wherein the IFC would monitor BML's credit profile through restrictive covenants and management inputs, which is expected to enhance BML's adherence to the proposed structure.

BML is a company of the Bharti group, one of the leading telecom players in the country, and is involved in the business of providing cellular mobile telephone services in Andhra Pradesh and Karnataka. The company was originally named JT Mobile, and subsequent to its acquisition by the Bharti group, the name was changed to Bharti Mobile. BML is owned 74 per cent by Bharti Televentures (BTVL), the telecom services holding company of Bharti group, and 26 per cent by Telia, AB, Sweden. The company reported a net loss of Rs. 25.43 crores on a gross revenue of Rs. 110.42 crores in 1999-2000.

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