New Delhi: Anil Ambani group firm Reliance Infratel, which has proposed an initial public offer of its shares, will utilise bulk of the IPO proceeds for repayment of loans totalling Rs4,000 crore to its promoters.
The company is awaiting regulatory clearance for the initial public offer, estimated to raise close to Rs 5,000 crore for the company, and has filed a draft Initial Public Offer (IPO) prospectus with Securities and Exchange Board of India.
Out of the total proceeds from the IPO, Reliance Infratel has said, it would utilise Rs4,000 crore towards repayment of loan to a promoter entity Reliance Communication Infrastructure Ltd (RCIL), while the rest would be used for issue expenses and general corporate purposes.
Besides RCIL, the company has also taken unsecured loans from another promoter entity Reliance Communications (RCOM), as also from commercial banks and third-parties, for its business expansion needs.
However, the company does not envisage having any surplus distributable earnings anytime soon and therefore does not expect to pay any dividend in the foreseeable future.
“We will not be in position to pay dividends to our shareholders in the foreseeable future....our business is capital intensive and we plan to make substantial capital expenditures to complete our current expansion plans,” the company said in the draft prospectus.
The company said that it has very recently commenced operations as an independent entity pursuant to a demerger scheme, and its free reserves are only equal to the fair value of the assets that have been acquired under the scheme.
Therefore, “We do not expect having distributable funds or paying any dividends in the foreseeable future. Additionally, we have taken unsecured loans from our Promoters, which may be recalled at any time by the lenders.
“We may be unable to pay dividends in the near or medium term, and our future dividend policy will depend on our capital requirements and financing arrangements for further expansion, financial condition and results of operations,” it added.
“We intend to use some of the proceeds from the Issue to repay a loan from one of our Promoters, RCIL,” the company said, adding that the total outstanding as on 15 September was Rs4,931.5 crore repayable by 31 March, 2012.
“The purposes of the loan were to fund capital expenditures towards the roll-out of towers and passive infrastructure and to refinance high cost debt that had been drawn to fund capital expenditure for towers and passive infrastructure.
“While the loan from RCIL had a lower rate of interest, lower costs and fewer covenants than what was otherwise commercially available, the portion of the proceeds that will be used for repayment will not be available for other purposes, such as building additional telecommunication towers and passive infrastructure, marketing the Company to potential customers or investing in new equipment and personnel.“
The company is planning to sell 15.6 crore equity shares with face value of Rs 10 each, to be sold at a premium to be decided later.
This will represent 10.05 per cent of the company’s total equity capital and reduce the promoters’ holding to about 85 per cent, as the company has already divested five per cent equity to a clutch of institutional investors in the past.
Reliance Infratel has been availing short-term and long-term loans from its promoters, RCOM and RCIL, from time to time, primarily to fund its expansion plans.
At the end of last fiscal, total unsecured loans outstanding were Rs15161.3 crore, out of which unsecured loans outstanding from promoters (RCOM and RCIL) were Rs 9,111.4 crore and remaining from the commercial banks and third parties.
As of 15 September, 2009, total unsecured loans outstanding from promoters were Rs 10,753.9 crore -- including Rs 5,822.32 crore due to RCOM and Rs4931.6 crore to RCIL.
“We intend to use part of the net proceeds amounting to Rs4,000 crore for repayment of the unsecured loan availed from RCIL,“ the company said, adding that RCIL has the right to charge interest from 1 October, or from the date the company gets listed on a recognized stock exchange, whichever is earlier.
Part of this loan, amounting to Rs 603.4 crore is repayable at the end of 31 March, 2010 and the balance of Rs4,328.2 crore by 31 March, 2012.