GTL Infrastructure has appointed Houlihan Lokey and its Indian affiliate Avista Advisory to advise on the restructuring of its outstanding USD 228.3m convertible bonds due November 2012, said two people familiar with the situation.

The move is the first concrete step that the cellphone tower arm of Manoj Tirodkar’s Global Group has taken to deal with its so-called foreign currency convertible bonds (FCCBs), two months after launching formal restructuring talks with its bank lenders. As the first major restructuring since international bondholders won preliminary approval to windup Wockhardt Ltd, this should provide a window on how FCCB recasts will play out over the next two years, when some USD 7bn of the notes come due.

“It’s still too early to tell how this might play out,” said one of source familiar. “But at least [GTL Infra] has taken a proactive step to try to resolve the matter.”

While Global Group’s leverage has long been a concern, the severity of the situation only became widely apparent in July, when GTL Infra and its 36.22% stake holder, GTL Ltd, announced that they had invited their respective bank lenders to form committees to restructure a combined around USD 3.5bn debt under India’s so-called corporate debt restructuring (CDR) mechanism. Of that, around USD 2bn is owed to banks by Infra, which generated just INR 1.96bn (USD 41m) consolidated EBITDA in the three months through June, on INR 3.45bn (USD 72m) of sales.

The companies had used most of the borrowings to grow rapidly, largely via heady acquisitions. Most notably, last year GTL Infra agreed to pay USD 1.8bn cash to buy 17,500 towers from Aircel, significantly resetting the price of towers in India – – at least temporarily. That acquisition, at the time the largest domestic cash transaction ever in India, was 60% debt funded and more than doubled the number of towers Infra had, to 32,633 as of June.

For Tirodkar, an erstwhile dot com boom and bust entrepreneur, the Aircel deal was the apex of his seemingly successful recast over the past decade as a telcom equipment and services impresario.

However, both the acquired and existing towers had reached only about 50% of the leased capacity required to be net profit accretive. And yet, even after the acquisition, the company was tied for smallest among the six major tower operators in India, according to its own tally.

“It was one underutilized asset borrowing money to buy another underutilized asset,” said an FCCB analyst.
GTL Infra would not comment on the appointments. Houlihan owns a stake in Avista.

First dibs

Both GTL entities appointed SBI Capital and IDBI Capital Market Services in July to advise on the restructuring of the bank debt. SBI Cap’s parent, State Bank of India, along with ICICI Bank, Standard Chartered Bank, Bank of Baroda and Axis Bank are among the Indian cell phone tower owner’s bank creditors. Infra yesterday denied domestic press reports that a deal had been made with the CDR banks.

The banks have gotten first dibs on the restructuring talks because of their senior status as well as the CDR rules, which exclude FCCB holders from the process. The senior status also means the bank lenders would need to sign off any agreement with the structurally junior bondholders.

The potentially humongous losses the banks face from this restructuring might not leave them feeling generous towards the bondholders, said an FCCB investor, two special situation investors and the analyst. As a comparison, they noted that in the case of Wockhardt, domestic bank debt only made up slightly more than half of the drug maker’s around USD 800m in borrowings at the time the restructuring commenced in early 2009.

Indeed, in a sign of how unusually assertive the banks are in this case, the privately owned ICICI took the extraordinary step of seizing from Tirodkar a pledged 29.3% stake in GTL Ltd, according to company disclosures. State owned Syndicate Bank has the right to seize another 22% but has so far refrained from taking action, according to local press reports.

“I think this could be a lot worse than the [GTL Infra] CB holders imagine,” said one of the special situation investors, who was tangentially involved in the Wockhardt restructuring.

On the other hand, the banks should be well aware of the trouble an irritated international bondholder can cause, said the FCCB investor and one of the people familiar with the situation. SBI was also the lead bank on the restructuring of Wockahrdt, during which a CDR group provided bondholders with a fait accompli term sheet, as reported. In response, a bondholder group filed a wind-up petition against the company, which was accepted by the Bombay high court in March.

An appellate bench gave Wockhardt until 21 September to come up with a settlement plan for the bonds, suggesting that management should consider redirecting some of the cashflow that would otherwise have gone to the bank lenders, as reported.

The GTL Infra zero coupon CBs were indicated last week at 60/65, said the analysts, who noted there is very little trading in the name. They traded around 110, for a 10% yield, before the CDR announcement in July, he said.

By Chaim Estuim
Source: Debtwire
Intel. Grade: Strong evidence
Intelligence ID: 1230659