Tata Telecom's Neotel, South Africa's new telecommunications provider has announced a project finance deal to the value of almost R4.4-billion (Rs220 crore).

Neotel signed the financing agreements today, largely concluding a two-year long programme to raise long-term financing and has secured R7.5-billion (Rs375 crore) of total funding, replacing all existing bridging finance, and which is made up of a combination of new equity and debt.

The debt facilities have been arranged by three of the leading financial institutions in South Africa - Nedbank Capital, the investment banking division of Nedbank Limited, one of the four largest banking groups in South Africa, Investec Bank Limited and the Development Bank of Southern Africa. 

Herc van Wyk, managing director of Kagiso Financial Services, financial adviser to Neotel, said that the transaction stands out as a milestone in the current difficult financial markets. He said that when potential financiers were initially approached during the first quarter of this year, the financial landscape was vastly different.

The funding will be provided by a consortium of institutions including Nedbank Limited, Investec Bank Limited, the Development Bank of Southern Africa, the Industrial Development Corporation and the Infrastructure Finance Corporation Limited.

''On the 12th of December 2006, we signed a bridging finance facility to the value of R2-billion to get the process started of building our network,'' says Ajay Pandey, MD and CEO of Neotel. ''At that point already we made history as it was the largest non-recourse facility for a start-up telecommunications project in the region, and one of the largest in South Africa then.''

''In addition we launched our consumer services during the course of 2008 and finally the South African consumer not only has a choice, but they are seeing real value,'' says Pandey. ''We continue to grow our network aggressively to ensure that customers have access to the value adds that we bring to the telecommunications market.''

Neotel is South Africa's first converged communications network operator. It provides a range of value-added voice and data services for businesses, wholesale network operators and providers and consumers using its pure-IP Next Generation Network, powered by Neotel's high-performance fibre optic backbone.

Neotel connects the major centres in South Africa to each other and to the world, directly linking the country into Tata Communications' global Tier 1 network.Neotel has been aggressively rolling out the new generation converged network across the country to provide services to its enterprise clients.

Neotel has now signed a second non-recourse facility, which replaces the bridging facility, this time more than double the size of the previous deal.

''What makes this deal significant,'' says Arun Gupta, chief financial officer, Neotel, ''is the fact that a limited recourse deal of this size has been concluded and this despite the current global economic climate.''

The Neotel transaction will be funded through a combination of senior, subordinate and mezzanine debt financing.

''We are still regarded as a greenfield project as there have been a number of false starts in the past,'' says Gupta. ''The fact that the financial institutions have provided this facility on project finance, limited-recourse terms highlights the belief the lenders have in what Neotel is bringing to the market and that we're on the right track.''

The financing will be provided from the finance consortium with terms ranging between seven to 10 years.

''This is undoubtedly one of the most significant project financings of the year and the ability to pull off a financing of R4.4 billion under current financial market conditions is testament to both the belief in the offering, which will change the shape of telecommunication services in South Africa, and in the strength of the shareholder grouping, led by Tata Communications Limited of India,'' said Mike Peo, head of infrastructure project finance at Nedbank Capital, who has led the process over the past two years. ''

Robert Gecelter, of Investec Project & Infrastructure Finance, one of the mandated lead arrangers in the transaction said that Neotel was the first true competitor to the incumbent operators. He said Investec would "continue to be doing more than anyone else in the country to both lower the price of broadband as well as build much-needed capacity in the South African market."

''We are very pleased to be participating in this groundbreaking transaction because Neotel signifies the momentous changes taking place in telecommunications sector. Neotel will bring positive developmental impact and effectively address Government's key priorities through reducing backlogs in the telecommunications sector thereby improving much needed access to services and enhancing service delivery. This is in line with our objective to support economic growth and development,'' said Lucy Chege of the DBSA.

''The Industrial Development Corporation views the provision of affordable telecommunication services as a key enabler of economic development. We are therefore proud to continue playing a role in the on-going development of Neotel and its provisioning of telecom infrastructure, through the IDC facilities'' said Lindi Toyi, Head of the Public Private Partnership SBU of the IDC.