The largest lender of India, State Bank of India (SBI) has agreed to lend a sum of Rs 10,000 crore to the joint venture firm by UK's Vodafone and Essar, Vodafone-Essar.
The bank is extending the funds to the company for starting its 3G (third generation) telecom services and expanding the broadband operations.
The loan has been sanctioned for a period of five years where an interest rate of 13.25% will be charged for the first two years and thereby a rate adjusted on the basis of the average prime lending rate of four PSU banks namely SBI, Punjab National Bank, Canara Bank and Bank of Baroda will be charged.
Sources from the banking industry said that SBI will give an exposure of Rs 7,000 crore to other banks and retain the remaining Rs 3,000 crore.
However the company is only concerned about the total loan amount that SBI has committed to sanction. "Whether SBI is down-selling part of the loan to other banks, we have nothing to do with it," said a company official.
Out of this loan amount, Vodafone-Essar is going to use about Rs 6,000 crore for expanding its current network of telecom service and pre-pay its previous debts with the remaining amount. A spokesperson from Vodafone Essar said: "We are using the bank facility for various business purposes."
Also the mobile operator has guaranteed 51% share capital of most of its subsidiary companies that jointly account for 92% subscriber base and 85% revenues. The company has also pledged for licenses in 23 circles where it runs its operations.
As on March 2008, the company had a total debt of Rs 10,040 crore in its books with the debt-equity ratio estimated to be less than 1.6. Now this loan amount of Rs 10,000 crore will make the firm's total debt mount up to Rs 20,040 crore.
Meanwhile the sources said that about Rs 500 crore of the new loan is likely to be picked up by Infrastructure Development Finance Company (IDFC) that has an exposure of Rs 800 crore in Vodafone Essar.