Nedbank Capital Opens Its Purse for Neotel in South Africa

Mergers, Acquisitions and Financial Results

Deep pockets at Nedbank Capital are still open despite the global financial crisis, with the institution lending R4,5bn to projects to swell SA's telecoms infrastructure. The latest company to win Nedbank's support is Neotel, which has now met all its foreseeable capital expenditure needs by raising R4,4bn in loans and R3,1bn from a fresh cash injection by its shareholders.

On Tuesday, Nedbank Capital announced it had thrown its weight behind the New Dawn satellite project, supporting ambitious African investors who are working with Intelsat to put bandwidth in the sky. Nedbank is also helping to fund the $600m Seacom undersea cable, by providing roughly half the debt financing needed to construct the 14000km cable.

Nedbank is supplying about half the debt financing for the New Dawn satellite and about 20% of Neotel's new loan. Together, those terrestrial, sea-bed and satellite projects will ultimately give consumers more access to cheaper voice, data and media services.

"We're investing about R4.5bn across the three deals," said Nedbank Capital's Mike Peo, probably making the company SA's most prolific funder of telecoms projects. "We are very positive about the telecoms sector in general, notwithstanding the current market conditions. Infrastructure is phenomenally important at the moment."

Peo said the bank was charging an interest rate "appropriate" to the risks, and earned a fee as the lead financier that put the funding consortium together. "We wouldn't do this if we weren't making significant returns." The Industrial Development Corporation is also contributing to Neotel's R4.4bn loan and is also backing the New Dawn satellite.

Neotel will spend the cash over several years, aiming for a total capital expenditure of R11bn over a decade. CEO Ajay Pandey said its financial needs had now been met, as R2bn had already been spent, and cash generated by its operations would fund the rest.

People wanted to know what interest rate Neotel was paying for its debt facilities during a financial crisis that had made investors cautious with their cash. Pandey said these days "you are not worried about the rate, you are worried about whether you have a deal".

The fresh equity investment of R3.1bn has been pumped in by Neotel's existing shareholders, led by Bombay-listed Tata Communications. Tata holds 26%, but the government is selling it another 30% that is owned by Eskom and Transnet. Pandey said the deal was still progressing, but would not disclose how much Tata had been asked to pay.

Its other shareholders are black-owned Nexus with 19%, and CommuniTel and Two Telecom Consortium with 12,5% each. Pandey said they had already put in the extra equity, as the banks would not supply the loans until the shareholders produced the equity.

Pandey rarely discloses figures to show how Neotel is faring, and last week would only say almost 300 companies were using its services.

Business Day