Faced with a substantial debt burden, India’s state-owned telecom operator, Bharat Sanchar Nigam Limited (BSNL), is taking a proactive step towards financial recovery. The company has announced plans to issue two separate 10-year bonds with a government guarantee, aiming to raise a total of ₹24.06 billion. This initiative follows the Indian government’s revival package unveiled in July 2023. The ₹19,000 crore sovereign guarantee specifically targets BSNL and MTNL, assisting them in restructuring their debt and improving their overall financial health.
Structured Bonds for Flexibility and Strategic Investment
According to merchant bankers involved in the deal, BSNL’s target amount for the bond issuance is ₹24.06 billion. This figure incorporates a greenshoe option of ₹18.01 billion. The greenshoe option allows BSNL to capitalize on strong investor demand and potentially raise an additional ₹18.01 billion, exceeding the initial target if market conditions are favorable. Interestingly, one of the bonds will come with a call option after eight years. This flexibility empowers BSNL to redeem the bond early if interest rates fall significantly, potentially saving the company money on future interest payments.
Investment Grade with Unwavering Government Backing
Both bonds boast a AAA (CE) rating from Crisil, signifying the highest creditworthiness. This top rating assures investors of minimal risk associated with the investment. To further solidify investor confidence, the bonds are backed by an unconditional and irrevocable guarantee from the Indian government. This government backing is particularly crucial for BSNL, considering the company’s debt burden which reportedly stood at ₹33,000 crore as of certain reports in September 2023.
A Strategic Move for Network Upgradation
The issuance of government-guaranteed bonds signifies a multi-pronged approach for BSNL’s financial revival plan. The funds raised from the bond issuance will be strategically directed towards servicing existing debt obligations. However, a significant portion is also expected to be allocated towards network upgradation. This modernization is critical for BSNL to compete more effectively in the dynamic Indian telecom market, where private players like Reliance Jio and Bharti Airtel have made significant strides in offering high-speed data services at competitive prices. Upgrading BSNL’s network infrastructure will enable the company to offer improved 4G services and potentially roll out 5G services in the near future, allowing them to cater to the growing demand for high-speed data connectivity.
The success of this bond issuance will be closely monitored by the telecom industry. A successful issuance of ₹24 billion, or potentially even exceeding that target with the greenshoe option, could pave the way for BSNL to attract further investments and solidify its position in the market. This, in turn, could lead to a more robust telecom landscape in India, offering consumers a wider range of choices with potentially more competitive data plans and improved network services across the nation.
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