Largest Indian restructuring nears end

Aug 2 (IFR) - A light is shining at the end of the tunnel for Indian telecom tower company GTL Infrastructure. After a drawn-out restructuring process, GTL is close to finalizing a cashless exchange offer with holders of its US$228.3m foreign currency convertible bonds.

Bondholders have approved a restructuring proposal tabled by GTL's advisers Houlihan Lokey and Avista Advisory, leaving a resolution likely before mid-September if the Reserve Bank of India approves it.

RBI approval would bring one of the largest restructuring processes ever conducted by an Indian company close to completion, coming after the GTL group restructured loans totaling about Rs140bn (US$2.7bn) late last year.

It may also offer a template for the many other Indian companies that are struggling to repay or refinance outstanding US dollar convertible bonds - especially in the face of slowing economic growth and a 25% slump in the rupee against the dollar over the past 12 months.

GTL Infrastructure's zero coupon CBs have an outstanding face value of US$228.3m. Issued at par, they redeem at 140.4 in November 2012. The bonds are convertible into shares at Rs53.04, but those options are well out of the money. GTL Infrastructure's share price was just Rs8.10 on Wednesday.

According to market sources, under the new proposal, about US$228.3m of the bonds would be exchanged at par into a new set of five-year convertible bonds that pay a coupon of six-month Libor plus 500bp. The conversion price is yet to be fixed, because the shares are quoted below face value, but the deal offers bondholders a solution that does not require a haircut to their principal.

Bondholders would also be offered equity to pay for the difference between the par issue price and the redemption price of the old bonds. A portion of the restructured CBs will be compulsorily convertible into equity, and a portion optionally convertible over the life of the bond.

Once the RBI grants its approval, the next step would be the appointment of a bookrunner to run the cashless exchange offer.

TELECOM TROUBLES

GTL Infrastructure and its parent, GTL, had approached the government-backed corporate debt restructuring panel on September 19 2011, after running into difficulties repaying debt owed to bank lenders and investors who held its convertible bonds.

The problems began after the company purchased 17,500 telecom towers from Aircel in July 2010 in an Rs80.3bn all-cash deal. Following the acquisition, the company said controversy in the awarding of licenses to new 2G operators in India slowed down the entire telecom sector.

"We expected new 2G operators would be key drivers for the growth in tenancy and towers. However, the license controversy has resulted in minimal roll out by them. This has resulted into a minimal growth in our revenue from new operators from April 2011," it said in its annual report.

The company also said that a rise in interest rates had affected its profitability and growth plans. All this -- coupled with the fact that telecom operators were finding it difficult to raise capital in this environment -- meant that the company had to approach a debt restructuring cell to get back on its feet.

MORE TO COME

A resolution was reached with lenders in December, which granted the company a two-year moratorium on debt repayments. The loans were extended to 10-15 years and the average interest rate was brought down by about 200bp from the current 13%. A large chunk of the debt -- estimated at around 20% of the total restructured amount -- was also to be converted into compulsory convertible debentures that can be converted into equity over a period of 6-18 months.

A successful resolution to GTL's debt burden is expected to pave the way for more cashless exchange offers from Indian companies that are struggling to repay convertible bonds issued during the Indian equity market boom of 2006-07. About US$7.6bn of CBs were issued by Indian companies in 2007 alone, with about US$22.2bn issued between 2005 and 2009. Roughly US$5.4bn of these are scheduled to mature between July 2012 and 2014, with estimated redemption values of US$6.6bn.

Slumping share prices have prevented investors from converting many of these bonds into shares, and the rupee's 25% fall against the US dollar in the past 12 months has left it next to impossible for these companies to repay the debt.

Some companies have simply tried to avoid making repayments to unsecured creditors or asked them to take haircuts, but investors have responded by threatening litigation or forcing them to come up with restructuring solutions.

One investor, QVT, has taken steps to recover money from convertible bond issuers through the courts, beginning action last year against pharmaceutical company Wockhardt. QVT featured as one of the biggest investors in GTL Infrastructure CBs, and it was also involved in the recent restructuring of Subex's outstanding US$54.8m 5% and US$39m 2% convertible bonds due 2012 -- also completed through a cashless exchange offer.

The old Subex bonds were exchanged for new five-year paper with a principal amount of US$131.1m, which pays a coupon of 5.7%. Unlike the previous ones, the new bonds were secured against certain assets of the company and redeem at par.

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