April 07, 2002 | Financial Express

Tata Teleservices- AAA rating has been assigned to the secured redeemable non-convertible debentures

Rationale
An AAA(fso) (pronounced as "Triple A foreign structured obligation") rating has been assigned to the secured redeemable non-convertible debentures issued as above (hereinafter referred to as NCDs). This rating indicates highest degree of certainty regarding timely payment of financial obligations on the instrument.

The rating is based on:
  • The strength of an irrevocable and unconditional guarantee to be executed by FMO assuring full and timely payment of principal and interest on the NCDs
    The legal opinion to be furnished to Crisil regarding the enforceability of the said guarantee regardless of the bankruptcy of TTL, TTL being referred to BIFR and incompleteness and imperfections in the debenture documentation if any.
  • The payment structure designed to ensure full and timely payment to the investors, and
  • The warranties as set out in the annexure

Payment structure
A designated account called the Structured Debenture Obligations Payment Reserve Account (SPRA) is to be opened which would be exclusively liened to the trustee to the transaction. The following payment structure (wherein "T" is assumed to be the due date for payment on the debentures) is envisaged for meeting the obligations on the NCDs:

Early redemption (in the event of default)

In the event of default occurring with regard to non-payment of scheduled interest and principal on a due date by the issuer and the scheduled payment being made by invoking the FMO guarantee, the issuer would be given a cure period of 30 days to remedy the payment default (by making the necessary payments to FMO in US$). In case, the event of default does not get cured to FMOs satisfaction, FMO at its option, would accelerate the debentures. Further, acceleration of the repayment of the debentures may be invoked by the debenture trustee following the occurrence of any of what would be termed as Acceleration events.

In the event of an acceleration of the debentures, the NCD holders would be paid the lesser of (x) and (y) where (x) and (y) are defined as follows:

(x) - the Acceleration Payment Amount determined by FMO in accordance with the formula = present value of the outstanding principal and Interest at a rate of discount equal to the interest rate of the debentures in addition to the unpaid interest on the debentures

(y) - an amount, advised to FMO by the debenture trustee, equal to the difference between (A) and (B) where (A) and (B) are defined as follows:

(A) the outstanding principal of, and unpaid interest on, the debentures due to be paid by the Issuer as a result of the acceleration of the repayment of the debentures and

(B) the amount, if any, actually paid to the debenture trustee by the issuer in satisfaction of the debenture trustees demand for payment with regard to the repayment of the debentures

Risk Assessment
The issuer of the NCDs is TTL. For the financial year 2000-01, the company reported a net loss of Rs 1,480.4 million on sales of Rs 863.4 million. As on March 31, 2001, the company had a networth of Rs 1,678.4 million and total assets of Rs 7,272 million.

However, the NCDs are fully guaranteed by an irrevocable and unconditional guarantee from the FMO and solely based on the same a "AAA(fso)" rating has been assigned to the instrument. In the event of there being any revision in the credit quality of the guarantor or the payment mechanism specified by Crisil not being adhered to, the rating of the NCD is also liable to be appropriately revised.

It is envisaged that a portion of the liabilities of FMO under the above mentioned guarantee would be counter guaranteed by Citibank NA. However, this would not have any rating implications.

Issuer profile
TTL is wholly owned by the Tata Group. TTL is the telecom vehicle of Tata Group for providing basic telephony services in the country. Crisil views TTL as strategic to the Tata groups plans to be an end-to-end telecom solutions provider. The Tata group plans to offer the entire range of telecom services namely, basic telephony, cellular, national and international long-distance services.

Currently, the company is providing basic services in 7 cities of Andhra Pradesh (AP). TTL also offers limited mobility telephony under Wireless in Local Loop (WiLL) in the cities of Hyderabad, Vijaywada, Guntur, Visakhapatnam, Rajamundhry, Elluru, and Nellore.

TTL has recently acquired the license for providing basic services in the states of Gujarat, Karnataka, Tamil Nadu and Delhi, and it is likely to start operations in these circles during 2002-03.

TTL also holds a letter of intent (LoI) for the circle of Maharashtra and is expected to sign the license agreement for the same.

Guarantor profile
FMO, a Dutch development financial institution, was established in 1970 by the Government of the Netherlands, several Dutch companies, and trade unions as a joint stock company as Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden NV under FMOs Articles of Association. The company has the mandate to promote the economic and social progress of developing countries by funding private-sector investments in those countries in line with the Dutch governments policy goals on development cooperation. The government holds 51 per cent of FMO and private Dutch banks hold 42.3 per cent, while the remaining shares are with private investors.

The companys core business is to provide long-term funding to private companies and financial institutions in developing countries primarily through long-term loans and equity investments.

FMO has outstanding ratings of AAA & A1+ for its debt programmes from Standard & Poors (S&P), one of the worlds leading credit rating agencies.

These ratings reflect the strong Dutch government support for the company, and are based on the legal obligation of the State of The Netherlands (rated AAA/Stable/A-1+ by S&P) to ensure timely payment of the companys debt. The ratings also reflect FMOs strong public policy role as the governments primary vehicle for promoting private-sector growth in developing countries. FMO had total assets of 1,402 million Euros on a total equity base of 592.2 million Euros as at December, 2000. It reported a net income of 16.8 million Euros for the year 2000 on revenues of 92.5 million Euros.