It’s a pledge

Mumbai, Dec. 6: A syndicate of banks and financial institutions who have disbursed close to Rs 4,224 crore to Idea Cellular, the telecommunication company belonging to the AV Birla group and its subsidiaries, have the option of converting their outstanding loans into equity shares in the event of a default by the company.

Idea Cellular and its two subsidiaries, BTA Cellcom and IMCL, concluded a restructuring exercise for their debt wherein they raised rupee term loans for an aggregate principal amount of Rs 4,224 crore. The loan was obtained from a syndicate of seventeen banks and financial institutions lead arranged by IDBI Bank Ltd.

Giving details of the conditions set in by the lenders in its draft red herring prospectus filed with the Securities and Exchange Board of India (Sebi), Idea Cellular said its promoters have given an undertaking that their collective holding in the company’s equity will not fall below 51 per cent.

Similarly, the company has agreed that it will not dispose of any part of its shareholding in its subsidiary. Besides, the Birlas have undertaken to pledge 51 per cent of their shareholding in the company in favour of the lenders in case of default. As on December 4, the promoters, represented by four companies in the group, held 65 per cent in Idea Cellular.

According to Idea Cellular, locked-in equity shares held by its promoters can be pledged with banks or financial institutions as collateral security for loans granted by such banks or financial institutions provided that the pledge of shares is one of the terms of the loan and under the long-term financing arrangements.

Idea Cellular, which has around 10.36 million subscribers as on September 30, is coming out with the IPO to part-finance plans to build and strengthen its network, roll out services in Mumbai circle and build national long distance (NLD) operations.

It plans to use close to Rs 2,530 crore from the IPO proceeds for these purposes.