Outstanding US$1.2 billion Islamic debt restructuring creates strife for Saudi Telecom - IFN

Outstanding US$1.2 billion Islamic debt restructuring creates strife for Saudi Telecom

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SAUDI ARABIA: Saudi Telecom (STC) has requested for Deutcshe Bank, HSBC and China Development Bank to restructure its US$1.2 billion Islamic financing facility procured in 2011 for its Indonesian arm, Axis Telekom. Axis has recently reported poor financial performance in its operations resulting in the breach of several of its financing terms. However, the banks have declined STC’s proposal and is currently looking for alternatives, as the restructuring would incur losses of up to US$600 million for the lenders. Even a slight reduction of 10% would result in losses of about US$25 million each for both HSBC and Deutsche Bank. The parent company has pitched to the banks for a reduction scheme that reflects the financing’s real value of between US$600-800 million however the creditors have raised the issue of a ‘letter of support’ which obliges STC to honor the terms and agreement of the financing in full. As the debt was structured under English law, this allows the creditors to pursue legal actions against STC outside of the Saudi Arabian jurisdiction. HSBC and Deutsche Bank, which arranged a Shariah compliant Murabahah facility amounting to US$450 million for the Indonesian telco firm, bear approximately US$250 million in exposure to the financing while China Development Bank has US$350 million-worth of exposure. Other banks involved in the deal including Citigroup, are said to have an exposure of less than US$100 million, according to Reuters. STC, which acquired an 84% stake in Axis back in 2007, is currently negotiating to sell its ownership to rival telecommunications company, XL Axiata. Both companies are yet to reach an agreement on the valuation of Axis as STC seeks to generate between US$800 million to US$1 billion from the sales whilst Axiata is only willing to purchase the stake for a maximum amount of US$600 million. Nevertheless, in the event that these companies reach a consensus as to the valuation of Axis, the transaction would still be subjected to the approval of STC’s creditors.