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Deal Maker of the Year Awards 2013
broadband venture of Qualcomm
behind LTE-TDD due to its compatibility with existing 3G networks and Qualcomm’s industry support. Qualcomm had largely achieved its strategic objectives. However, there was still significant work ahead.
To start, in order to mitigate its foreign currency and remittance risk upon any sale, Qualcomm sought to fund the initiative as much as possible in Rupees (i.e. the likely currency of any sale) and minimize its in-country cash investment. Accordingly, Qualcomm secured Indian Rupee bank financing ($1.05B equivalent) to pay for the spectrum. Due to time constraints in which to pay this amount Qualcomm quickly arranged a 6 month bridge loan from a syndicate of foreign and Indian banks with the assistance of Bank of America (BoA). Several months later, that bridge loan was refinanced on a floating rate basis for a period of 2 years, also with the help of BoA.
Next, due to foreign ownership restrictions, Qualcomm could not own 100% of the spectrum. Therefore Qualcomm had to find an initial local partner to own at least 26% of a spectrum holding company as a condition to issuance of the spectrum license. With the help of Barclays Bank, Qualcomm identified several potential local Indian partners and ultimately negotiated joint venture agreements with two of them. In order to minimize their statutory rights under the JV agreement, each party was limited to 13% of the total equity. The amount of total equity invested was approximately $230M and was sized such that it would be sufficient to service the above mentioned floating rate debt for a period of 2 years, which was the time period Qualcomm was hoping to be able to enable
the ecosystem and partner with an existing wireless operator (more on that later).
In early 2011, Qualcomm began socializing it intentions to partner with an existing wireless operator and ultimately focused its efforts on Bharti, India’s largest wireless operator who also won four regional 4G spectrum licenses at auction. Negotiations with Bharti went on for close to 18 months at which time, due to actual Rupee interest rates exceeding Qualcomm’s estimates, the equity Qualcomm and its initial local partners had injected into the company to service the debt was almost exhausted. In order to buy itself more time and avoid seeking additional equity from its local partners (or finding new local partners), Qualcomm arranged a roughly $480M Rupee denominated offshore Infrastructure Bond financing because, unlike onshore Indian bank loans, the proceeds could be used to pay interest on existing indebtedness. This additional time allowed Qualcomm to ultimately come to terms with Bharti in June 2012.
Among other provisions, the transaction included a series of payments whereby Bharti was required to first buy out Qualcomm’s initial local partners (a deal Qualcomm also brokered) followed by the repayment or refinancing of the Qualcomm guaranteed debt. The final payment occurred in October 2013 when Bharti acquired Qualcomm’s equity in the venture. During this time Qualcomm was also actively engaged with its equipment and device licensees and in Dec 2011 Qualcomm, Bharti and several LTE-TDD infrastructure and device manufacturers conducted live demonstrations in India using commercial grade LTE- TDD devices. Qualcomm is currently assisting Bharti in regards to its network architecture and deployment and
large scale LTE-TDD network deployments are ongoing in India, China and elsewhere.
It is also worth noting that in order to provide itself maximum flexibility in terms of partnering with existing wireless operators, Qualcomm established four separate spectrum holding companies and requested that the Indian Department of Telecommunications (DoT) issue one license to each entity. After significant delay, the DoT ultimately insisted that only one license, covering all 4 regions, would be issued to a single Qualcomm controlled entity. As a result, Qualcomm undertook to merge all 4 of its entities into one. However, during the pendency of the DoT’s deliberations and approval of Qualcomm’s merger application by the Delhi and Mumbai High Courts that followed, documentation related to the above mentioned bridge loan, bank loan, infrastructure bond, local partner investments and Bharti sale transaction had to be replicated across each of the four Qualcomm controlled entities in proportion to the value of their intended spectrum license. Once the merger was finally approved, all four entities were then collapsed into one.
It would appear that Finance Monthly’s 2013 Deal Of The Year may best be described as a series of complicated financial transactions overlaid on top of a series of buyer payment and other obligations, multiplied by four and successfully completed within a challenging Indian legal / regulatory environment as part of a broader corporate strategic investment initiative……
Strategic and financial objectives accomplished. A win - win for both parties.