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Sistema to raise $2 billion for expansion
Sistema Shyam TeleServices (SSTL), which recently launched MTS mobile service network, is looking to raise around $2 billion to ramp up infrastructure, as it looks to expand in a crowded cellphone market bearing the brunt of a fierce price war.
The joint venture between Russia’s Sistema and Shyam Group of India is in talks to raise a long-term debt of $2 billion from China and Japan and a “sizeable sum” from domestic lenders, including Punjab National Bank, said two executives involved in the fund-raising exercise. A part of the money will be used to buy Chinese telecom equipment and the rest will be used to meet capital expenditure and working capital needs, said the executive who preferred not to be named.

SSTL is in talks with China Export & Credit Insurance Corporation (Sinosure) for a $980-million loan, which will have a repayment period of over 10 years, and another $1 billion from Japanese banks, said the executive. SSTL expects to close the transaction shortly, another executive privy to the talks said.

“We are working with banks for further funding,” said SSTL president and CEO Vsevolod Rozanov. However, he said the money involved is nothing of ‘this’ ($2 billion) magnitude.

Once the funds are committed, the company hopes to use the money over the next couple of years depending on the need. SSTL has been able to lower the overall interest cost after Sistema extended guarantee for the part of the loan, said this executive, who is an investment banker.

The CDMA company has licences and spectrum to provide services in all the 22 circles across the country and subscriber base of about 2.8 million.

Currently, it operates in 10 circles, including Delhi, Kolkata, and Mumbai, and is looking to expand in the world’s fastest-growing telecom market where 13 operators are jostling with each other with cut-throat prices. MTS too recently launched a 0.5 paisa per second talk plan.

If SSTL does secure funds from Sinosure, it would be state-run official export credit insurance agency’s first big exposure to the Indian telecom market. Sinosure offers export credit and credit insurance for China’s overseas outflows and inflows, and guarantees both shares and loans. According to the investment banker, Japan’s Sumitomo Mitsui Bank is the lead banker for the fund-raising exercise. While the term of the funds was unknown, the person said the rate is “very competitive in the global market”.

Besides the $2 billion debt, SSTL is also raising Rs 3,400 crore through the equity route. This includes Rs 3,170 crore from the Russian government by divesting a 19.8% stake at Rs 49.31 per share, which values the company at Rs 16,000 crore.

SSTL has also raised Rs 228 crore from the Indian promoters. The allotment of shares to the Indian promoters has been done to keep its total FDI below the government-set limit of 74%.

The proposal to sell shares to the Russian government was recently cleared by the Foreign Investment Promotion Board, the nodal agency for such investments. Post-sale, Sistema’s stake will shrink to 54.2% while Shyam Group will continue to have a 23.5% equity in the JV. Sistema currently owns 73.71% in the venture.

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