Neotel, South Africa’s new telecommunications provider has confirmed the confidence that remains high in the South African telecommunications market by announcing a project finance deal to the value of almost R4.4-billion (INR 220 crore).

Neotel has signed the financing agreements today, largely concluding a two-year-long programme to raise long term financing and has secured R7.5 billion (INR 375 crore) of total funding, replacing all existing bridging finance, and which is made up of a combination of new equity and debt. The debt facilities have been arranged by three leading financial institutions in South Africa, namely Nedbank Capital, the investment banking division of Nedbank, Investec Bank and the Development Bank of Southern Africa. The funding will be provided by a consortium of institutions, including Nedbank, Investec Bank, the Development Bank of Southern Africa, the Industrial Development Corporation and the Infrastructure Finance Corporation.

“On the 12th of December 2006, we signed a bridging finance facility to the value of R2 billion to get the process of building our network started,” says Ajay Pandey, MD and CEO of Neotel. “At that point already we made history, as it was the largest non-recourse facility for a start-up telecommunications project in the region, and one of the largest in South Africa then. ”Neotel has been aggressively rolling out the new generation converged network across the country to provide services to its enterprise clients. “In addition we launched our consumer services during the course of 2008 and finally the South African consumer not only has a choice, but they are seeing real value,” says Pandey. “We continue to grow our network aggressively to ensure that customers have access to the value adds that we bring to the telecommunications market.”

Neotel has again broken the boundaries, signing their second non-recourse facility which replaces the bridging facility, this time more than double the size of the previous deal. “What makes this deal significant,” says Arun Gupta, chief financial officer of Neotel, “is the fact that a limited-recourse deal of this size has been concluded and this despite the current global economic climate.”

This is demonstrative of the strength of the project and confidence of the lenders in both the Neotel management team and the strength of the shareholders.”

The Neotel transaction will be funded through a combination of senior, subordinate and mezzanine debt financing. “We are still regarded as a greenfield project as there have been a number of false starts in the past,” says Gupta. “The fact that the financial institutions have provided this facility on project finance, limited-recourse terms, highlights the belief the lenders have in what Neotel is bringing to the market and that we’re on the right track.” The financing will be provided from the finance consortium with terms ranging between seven and 10 years.

“This is undoubtedly one of the most significant project financings of the year and the ability to pull off a financing of R4.4 billion under current financial market conditions is a testament to both the belief in the offering, which will change the shape of telecommunication services in South Africa, and in the strength of the shareholder grouping, led by Tata Communications of India,” said Mike Peo, head of infrastructure project finance at Nedbank Capital, who has led the process over the past two years. Nedbank is very proud to have played a pivotal role in shaping the transaction and is committed to partnering Neotel as it goes from strength to strength.”

Robert Gecelter, of Investec Project & Infrastructure Finance, one of the mandated lead arrangers in the transaction, added that, “Investec is proud to be supporting Neotel, which is the first true competitor to the incumbent operators, and will continue to be doing more than anyone else in the country to both lower the price of broadband as well as build much-needed capacity in the South African market. We are also pleased to be assisting with such a meaningful inward investment into South Africa by the world-renowned Tata group through its subsidiary Tata Communications, Neotel’s controlling shareholder.

“We are very pleased to be participating in this groundbreaking transaction because Neotel signifies the momentous changes taking place in the telecommunications sector. Neotel will bring positive developmental impact and effectively address the government’s key priorities through reducing backlogs in the telecommunications sector thereby improving much-needed access to services and enhancing service delivery. This is in line with our objective to support economic growth and development,” said Lucy Chege of the DBSA.

“The Industrial Development Corporation views the provision of affordable telecommunication services as a key enabler of economic development. We are therefore proud to continue playing a role in the ongoing development of Neotel and its provisioning of telecom infrastructure, through the IDC facilities,” said Lindi Toyi, head of the public private partnership SBU of the IDC.

Herc van Wyk, managing director of Kagiso Financial Services, who acted as financial adviser to Neotel, commented that the transaction stands out as a milestone in the current difficult financial markets. He added that when potential financiers were initially approached during the first quarter of this year, the financial landscape was vastly different, but the fact that a transaction of this magnitude could be signed today bears testimony to the continued commitment of all the parties involved.