Bharti loan deal is indeed a fine one

Good credentials, strong negotiating muscle and decent sovereign ratings on India helped Bharti Telecom tie up loans worth $8.3 billion at enviable rates for its proposed acquisition of Zain Africa BV, say experts.

The telecom company, India’s biggest, will get overseas loans worth $7.5 billion from a group of banks led by Standard Chartered Plc and Barclays Plc for the acquisition, besides a rupee loan equivalent to $1 billion from the State Bank of India (SBI) to partly cover the transaction costs.

But more importantly, the foreign currency loan will come at an enviable 195 basis points (1.95 percentage points) above the London inter bank offer rate (Libor) — a rate merchant bankers believe no other Indian company could have got, barring perhaps RIL and ICICI Bank, which have strong balance sheets.

What clinched it for Bharti?
Hemant Mishr, managing director (head-global markets, South Asia), Standard Chartered Bank, declined to comment.

Pratip Chaudhuri, deputy managing director and group executive (international banking), SBI, was unavailable for comment.

Ajay Manglunia, senior vice-president, Edelweiss Securities said a number of things were taken into account while making such loans, including sovereign ratings, the company’s credentials and timing of the loan. “There is no such benchmark as to at what rate a company should get the loan. It depends on the negotiating skills too,” he said.    

“India has never borrowed in global markets. Hence we do not have a benchmark rate. Public sector undertakings, whose risk rating is similar to sovereign risk, are generally borrowing at a spread of 1.5-2% over Libor. Private sector companies are borrowing at spreads in excess of 2% over Libor. Hence, we may say Bharti has borrowed at a fine rate (<2% over Libor),” said C Chandrasekhar, senior vice-president, Mecklai Financial.

The one-year Libor is currently at 0.89%, six-month at 0.44% and three-month at 0.28%.

Bharti was initially looking at a rate of 300 basis points over Libor, said a merchant banker who did not wish to be named. “But it appointed the best negotiators and managed to get the loan at 195 basis points above Libor. It is the only company so far to have got a loan at such rates,” he said.

It sure helped the company that India’s sovereign ratings are good right now. Only earlier this month, Standard & Poor’s (S&P) Ratings had affirmed the ‘BBB-’ long-term and ‘A-3’ short-term sovereign credit ratings on India.

Interestingly, S&P had in February slashed Bharti’s long-term corporate credit rating to ‘BBB-’ with negative implications in view of the company’s proposed bid for Zain Africa. The debt-based acquisition and the impending 3-G licence auction may deteriorate Bharti’s financial conditions, it had said.

“A potential debt-funded acquisition and the near-term 3G license auction in India could increase Bharti’s consolidated debt to earnings before interest, taxes, depreciation, and amortisation to about 3 times for the fiscal year ending March 31, 2011, from 1.4 times for the 12 months ended December 31, 2009,” the S&P release stated.