Neotel lines up R6bn for network

By Nicola Mawson for Neotel
Johannesburg, 13 Dec 2006

SA's second national operator Neotel has made arrangements for R6 billion in funding for its network.

The first stage of the funding, R2 billion in bridge financing, was signed into reality at a function in Sandton yesterday afternoon. MD Ajay Pandey said it was an important landmark for Neotel.

A consortium of bankers - Investec, Nedbank and the Development Bank of Southern Africa (DBSA) - financed R1.4 billion of the short-term loan, while the Industrial Development Corporation financed R600 million.

The debt, which will be refinanced in 12 months, will enable Neotel to start rolling out its network. Investec, Nedbank and DBSA have already been appointed as lead arrangers to finance longer-term project finance of R4 billion.

Neotel's fund-raising will be supplemented by over R2 billion in equity funding to be contributed by its shareholders.

Neotel's shareholding - the subject of market speculation since Eskom indicated it would pull out - is currently intact. "As of now, there is no change in shareholding," said Pandey.

Eskom Holdings and Transtel each have a shareholding of 15%, black empowerment firm Nexus Connexions has a 19% stake, while the Strategic Equity Partner Company consortium holds the balance. The consortium comprises the Tata Group of India (through VSNL and Tata Africa Holdings) and two private consortia - Communitel and Two Consortium.

Gearing up

Pandey said Neotel would need to raise around R8.5 billion in the next five years. The company has already indicated it will spend R11 billion over the next 10 years. Peak funding is expected to be R5 billion, he added.

Most of Neotel's budget is expected to be spent on network infrastructure and it has already short-listed some vendors, noted Pandey. He is hopeful the company will be profitable in the next four to five years.

Neotel expects to invest in a next-generation network and technology such as soft switches. The network will be complemented by a wireless component, and the operator has already applied to the Independent Communications Authority of SA for access to the 800MHz band.

Roll-out to corporates will be followed by connectivity to smaller firms and then residential areas in SA's top five or six cities.

Its residential offering, which is expected to start becoming available in the second quarter of next year, will be a combination of fixed and wireless connectivity. Some of the funding it has raised will go towards providing fixed-lines to homes, said Pandey.

While there is no clarity on the status of the local loop as yet, Pandey commented that this did not mean a delay in rolling out services, rather that Neotel would not make use of Telkom's last mile.

The company's access network is initially expected to be in geographic areas where there is a concentration of large enterprises. "No telecoms operator would roll-out everything on day one."