EKN’s Pakistan landmark
ABN AMRO and Standard Chartered Bank acted as mandated lead arrangers for a US$500mn EKN buyer credit facility for Warid Telecom for the financing of its mobile network expansion in Pakistan in November.
This financing is the single largest EKN-backed telecom financing, not just in Pakistan, but in the Middle East and Asia, claims Standard Chartered. It is also the largest corporate export credit agency (ECA)-backed transaction since 1998 in Pakistan and the largest cross-border capital expenditure-related telecom debt financing into Pakistan.
The financing will facilitate Warid’s expansion plans by enhancing its mobile network capacity and enabling the company to accelerate its rollout into more new cities in Pakistan. With the financing in place, Warid will be well positioned to capitalise on the huge wireless market potential in Pakistan.
This transaction is structured as a buyer credit facility, which benefits from 100% political and 90% commercial risk cover from Sweden’s Exportkreditnímnden (EKN).
The facility will be used to reimburse Warid for payments it has already made to Ericsson, finance additional purchases of equipment or services from Ericsson (in 2006 and 2007), and make payment of insurance premium to EKN.
The overall tenor of the facility is eight years.
The structure of the security and documents will enable Warid to make any further debt raisings so long as the covenants are met, thereby facilitating funding of any future cash requirements.
The transaction was effectively structured as a corporate deal, enabling the client to enjoy the lower premiums of a corporate deal even though the company, still in the early implementation phase of its expansion and growth strategy, had some project-like features.
“The risks associated with such a type of financing as this are well mitigated based on the company’s growth potential and its ability to generate adequate cashflows,” says Marcel Ivison, head of structured export finance, Asia, at Standard Chartered in Singapore. “The facility will be fully hedged to avoid risk of exchange rate fluctuation. In addition to the EKN guarantee, which covers 100% political and 90% commercial risk, lenders will have an adequate security package including a charge on the company’s assets.
“The telecom operators are well supported by Pakistan Telecom Authority who has taken number of initiatives for the growth of industry. The country outlook is also positive with impressive economic growth and political stability in last few years.
“There is huge potential for growth in Pakistan’s telecom sector. In this regard, Warid is well positioned to take advantage of increasing its market share through an extensive capex programme. The company has already achieved market share of 16% with over 7.6mn subscribers since launch of operations in May 2005.
“From an industry perspective, we are seeing high subscriber growth in the South Asia region and we would expect to see operators access the debt market to meet their capex requirements. ECA financing has emerged as a key and important means of telecom debt and we expect to see similar deals in 2007.”
Warid Telecom Pvt Ltd is owned by the Abu Dhabi Group, one of the largest conglomerates in the Middle East and the single largest foreign investor group in Pakistan. The Abu Dhabi Group has been a highly successful investor in Pakistan with business interests that include Bank Alfalah, United Bank, Taavun, and Wateen Telecom.
“This financing agreement demonstrates the strong cooperation between banks and EKN in sharing risks through a superior model of financing,” says Sheikh Nahayan Mabarak Al Nahayan, chairman of Abu Dhabi Group. “Warid Telecom has strengthened its position in Pakistan and plans to expand its network by providing cutting edge technologies to customers in urban and rural areas.”
Warid, which started its services in May 2005, was the first telecom venture for the Abu Dhabi Group. Since then, the group’s telecom business has expanded significantly with the rollout of new mobile networks in Bangladesh and Republic of Congo, and the recent acquisition of a telecom licence in Uganda.
With a current subscriber base of 7mn customers (achieved within 500 days from launch of its services), Warid has become the third largest and fastest growing mobile company in Pakistan. Since its launch, it has also achieved one of the fastest network rollouts in Asia.
Borrower: Warid Telecom (Pvt) Ltd
Mandated lead arrangers: ABN AMRO;Standard Chartered Bank
Law firms: Tariq Kamal Qazi (borrower); Clifford Chance, Orr Dignam (borrower)
Date closed: November 2006