Only eight CBs have come to market over the past two months and, of those, only two have been from India. This is leading to significant pent-up demand û especially since the equity markets continue to rally. GTL initially offered $200 million worth of bonds plus a $50 million greenshoe, but after seeing the level of demand available, the company together with joint bookrunners Citi and Standard Chartered Bank decided to increase the base size by another $50 million to $250 million. The greenshoe of $50 million is still there and will result in a total deal size of $300 million if it is exercised in full.
According to a source, the offering attracted more than $1 billion of demand and saw the participation of more than 90 investors. The interest was partly due to the companyÆs strong growth prospects but also to the relatively low premium, which was fixed at 20% over the five-day volume-weighted average price of Rs44.2 on the National Stock Exchange. The premium was offered in a range between 15% and 20%.
Having been issued at par, the bonds were bid at 101.50 in the gray market during the offering, although the price came down slightly to about 101.00 after the deal was upsized, one source says.
The low premium is in line with GTLÆs aim to see the bonds convert into equity, allowing it to deleverage over time. It also enabled the yield to be pushed down to 6.9% for some reasonably cheap funding should the share price fail to perform. The yield was offered in a range between 6.8% and 7.3% range.
A clear indication of how positive investors are about the stock is the fact that the bond floor is set at 84%, which specialists say could be the lowest ever for an Indian CB. Here too, the modest 20% premium is likely to have been a supporting factor. However, the premium isnÆt that low if one takes into account that GTLÆs share price has rallied 20% over the past three sessions.
Investors also proved willing to pay an implied volatility of about 35%, which is higher than on most other Indian CBs over the past few months that have seen implied vols at around 30% or just above.
The bookrunner provided a credit bid for about a quarter of the base deal size, or $50 million worth, at a spread of 550bp over Libor, which was partially taken up. However, once they were comfortable that there was credit support at this level, some investors were said to have been happy to buy the deal on an outright basis.
The wide spread is a reflection of the companyÆs high leverage, which may seem a bit scary at first glance, but is quite typical for companies involved in this type of infrastructure business. The company, which listed in November 2006, is also still loss-making and reported a net loss of Rs1.6 billion ($40 million) in the six months to September. US investors who are familiar with similar tower operators in their home market were, however, quite keen on this offering and helped support the deal, the sources say. GTL has also spent a lot of time educating investors about its business over the past year or so.
Other assumptions included a full dividend compensation and a 5% stock borrow cost. The bonds have an issuer call after three years, subject to a 130% hurdle.
Established in 2004, GTL is in the process of setting up a pan-India network of 25,000 towers primarily in rural areas that can be shared among the telecom operators. According to the companyÆs Website, India needs to set up over 350,000 towers over the next three to five years to sustain the growth in the Indian wireless market, which is among the fastest in the world with an addition of 5 million new subscribers every month. This expansion of the tower infrastructure will require capital expenditures of about $20 billion, it says.
According to the term sheet, the company will use the money on capital expenditure, including buying more towers.
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