960417

Consultants' reservations ignored

PTC to raise $200m

loans for government

against receivables

RECORDER REPORT

KARACHI: Pakistan Telecommunication Corporation is reportedly going ahead with plans to enable the government to raise foreign currency loans securitizing PTCL's forex receivables between June 15-25, 1996, despite objections raised by the PTCL's privatization consultants, Morgan Grenfell that "implementation of such a proposal would diminish the valuation of PTCL share in the eyes of strategic investor".

After the presentation of a detailed scheme by Citibank on Sunday last, over half a dozen more foreign banks have been asked to give their offers within the next 24 hours to the PTCL Board. Some invitee bankers, however, feel that such a short notice to raise $200 million is only a pretense of transparency in the exercise and the mandate for the long-term loan on the security of future forex cash flows of PTCL has already been awarded to Citibank.

At the preliminary presentation to the Ministry of Finance and the Privatisation Commission, Morgan Grenfell's representatives, at the commission office, reportedly frowned upon the proposal as it could diminish and not enhance PTCL share value to a management buyer.

Since conceptually the proposal suits the government, which is faced with a fall in forex reserves, Grenfell's advice has been ignored, raising a bridge loan from banks by June 15 is being seriously contemplated. This bridge loan can be financed by creating a vehicle (company) abroad to receive $400 million of net PTCL inflows. After credit rating by Moodys and S&P of the quality of relationship between the monthly transactions between PTCL and the overseas telecom companies such as AT&T, MCI, Deutsche Telekom, British Telecom etc, $200 million worth of paper of five year tenure would be placed with institutional investors abroad.

A similar exercise was lately concluded for Telemex (Mexican telephone cos) and $300 million were raised at 60 points above Libor by Bankers Trust, New York.

The existing long-term forex obligations of PTCL by end 1995 are reportedly around Rs 6.3 billion. Historically, these forex loans being guaranteed by government become its obligations and PTCL pays 14 percent interest to cover the interest plus exchange risk fee costs to the government.

The proposal now being pursued would make the $200 million loan a direct obligation of PTCL.

At present, the company is under-leveraged and makes for an attractive buy for the strategic investor contemplating raising funds to finance PTCL's own expansion plans. Using its forex receivables to finance government's budgetary needs will affect the telephone giant's future cash flow. As such, a proper follow-through of the transaction needs to properly probed, according to some financial experts.

With major telephone giants concentrating on mega mergers among themselves, Morgan Grenfell is facing a tough time to meet the time schedule for PTCL's 26 percent shares management sale. In America, baby bells are merging. Across the Atlantic merger between British Telecom and Cable and Wireless is expected to create a Anglo-Asian colossus valued at $55 billion. Concert, MCI global alliance with BT and AT&T's alliance with Japan's KDD and others, Sprint America's share deal with France Telecom and Deutsche Telekom forming a global one have caught the fancy of investors. As such, relaxation of criteria of PTCL's sale as well as generating some kind of interest among investors towards Pakistan is sorely needed, experts said.