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Siemens to pick up Sterling Cellular equity

A proposal by the German company to float an Indian joint venture for the purpose has been cleared by the Foreign Investment Promotion Board.

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Sources said the German company proposes to pick up the equity stake in lieu of payments owed to it by Sterling Cellular for supply of cellular equipment in Delhi and the other three circles in a deal worth over $100 million.

However, they said the exact stake had not been finalised and "could be between 5 and 10 per cent".

According to the proposal cleared by the FIPB, Siemens Public Communications Networks Limited - a 100 per cent subsidiary of Siemens AG, Germany - will make "downstream investment by way of establishing a joint venture investment company in Indian in collaboration with Infra Tel Invest India Private Limited to make investment, inter alia, in the telecom sector".

The FIPB decided "to recommend the proposal for consideration and approval of CCFI (cabinet committee on foreign investment) subject to the condition that the investing company shall not have more than 49 per cent FDI and that management and control of the investing company shall at all times rest with the Indian partners.

Investments made by the investing company into the licensee company would also be subject to the licensing requirements as prescribed by DoT (the department of telecommunications)."

The proposed foreign equity (49 per cent) in the venture amounts to Rs 2.45 million.

Sterling Cellular, a 51:49 joint venture between the Essar group and Swisscom, has not been able to pay Siemens for the cellular equipment because of delays in achieving financial closure.

The company's plan to raise some $250 million (about Rs 10 billion) in debt has not fructified due to differences with lead arrangers and poor market conditions.

UBS, Credit Lyonnais and ANZ Investment Bank, which have fully underwritten the $250 million loan facility, had earlier insisted that Sterling Cellular pledge its shares as collateral for the syndicated loan.

Top executives of Sterling Cellular, on the other hand, felt that assignability of licences together with strict covenants is good enough as a collateral. However, after the banks softened their stance, Sterling changed its plans and decided to tap the domestic rupee debt market with tax-free infrastructure bonds.

Although Swisscom owns only 49 per cent directly in Sterling Cellular, it is believed to have majority equity in the company through a presence in nominee Indian companies.

Swisscom increased its stake in Sterling Cellular from 33 per cent to 49 per cent earlier this year. Sterling Cellular, the cellular licensee in Delhi, controls Aircell Digilink, which holds the operating licence in Haryana, Uttar Pradesh (East) and Rajasthan.

The former owns 80 per cent stake in the latter. The company plans to invest Rs 15.5 billion in all its circles over the next five years.

Equity investments of some Rs 6.5 billion have already been capitalised. The $250 million (Rs 10 billion) loan syndication is expected to bring in the debt portion of the project finance.

The company tied up $110 million (Rs 3.8 billion) in vendor credit at 0.5 per cent over the London interbank offered rate from Siemens, which set up its cellular network in Delhi and the three circles.

- Compiled from the Indian media

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