Bharti may prepay part of $7.5 bn loan

Bharti may prepay part of $7.5 bn loan

Mumbai: Bharti Airtel Ltd may prepay at least $1 billion (Rs 4,440 crore) of the $7.5 billion loan it took from banks to fund its acquisition of the African assets of Kuwait-based Zain Telecom, according to a banker familiar with the development.

Bharti, India’s largest telco, maintains that free cash flows would enable it to make early repayments, but didn’t put a number to the amount that will be prepaid.

“The flexibility of prepayments has always been part of the loan agreement and Bharti has the option of prepaying based on its cash flow. We have seen significant free cash flows over the past few quarters and we feel this is right time to usethese and other related means to optimize the mix and cost of financing," a Bharti spokesperson said in an email.

According to Bharti’s results for the three months ended June, the telco’s cash balance at the end of June was 2,954 crore.

According to the banker cited above, who did not want to be identified, banks that syndicated the loan were finding it difficult to sell it to other banks at a profit and had requested a prepayment.

Requests for repayment are not legally binding on companies that have borrowed money and Bharti’s willingness to pay does indicate, as its response says, better cash flows.

The loan was originally financed at 195 basis points (bps) over the London interbank offered rate (Libor), an international benchmark, for a tenure of six years. For the Bharti Airtel deal, the arrangement fee was 20 bps. One basis point is one-hundredth of a percentage point.

The spread increased to at least 250 bps above Libor after the loan was made. As spreads increase, banks have to declare mark-to-market losses, valuing the investment at the current market price instead of the purchase price.

The average tenure of the debt is 4.7 years and the first principal outgo was set to come after two-and-a-half years, Bharti officials had said in a conference call with analysts on 14 July. The interest outgo was to be $200 million per year.

Originally, 11 banks, led by Standard Chartered Plc, had underwritten the $7.5 billion loan.

Standard Chartered had underwritten $1.3 billion and Barclays Plc $900 million.

The other syndicate members are Australia and New Zealand Banking Group Ltd, BNP Paribas SA, Bank of America Merrill Lynch, Credit Agricole CIB, DBS Bank Ltd, Hongkong and Shanghai Banking Corp. Ltd, Bank of Tokyo-Mitsubishi UFJ Ltd, Sumitomo Mitsui Banking Corp. and State Bank of India.

In addition to that, at least four banks were set to join the syndication later, Charles Corbett, managing director and head of syndication for South Asia at Standard Chartered, had said in a phone interview to Mint on 22 July.

Italy-based Intesa Sanpaolo SpA committed $400 million and Deutsche Bank AG committed $300 million towards the syndication. At least two other multinational banks were expected to join the syndication with at least $300 million and become part of the mandated lead arrangers, Corbett said at that time. Mint couldn’t immediately ascertain which banks ultimately joined the syndicate.

Standard Chartered, being the highest contributor towards the loan, is expected to get the major share of the prepayment. However, it is not clear if the prepayment amount will be distributed in the same proportion as the loans issued.

Arijit De, Standard Chartered’s head of external communications for South Asia, declined to comment.

“As a matter of policy, we don’t comment on client-related issues," De said in an email response to a Mint query.

Typically, banks that form a syndicate give loans at the first stage to a firm and they sell down a bulk of it to other banks at a price which is higher than what they had paid, and make some profit in the process. In investment banking parlance, this spread is called skim.

They also earn a small arrangement fee. The arrangement fee is a one-time income while they earn skim for the tenure of the loan.

Ashwin Ramarathinam contributed to this story.