NEW YORK-Telesystem International Wireless Inc., Montreal, was expected to place privately last week a 10-year note issue of about $150 million to help finance its overseas ventures in cellular telephony, specialized mobile radio and paging.
Part of the proceeds also will be used toward Telesystem’s 20-percent share of the purchase price of a B-band cellular concession in Brazil recently awarded to Americel, a Canadian-led consortium.
Goldman Sachs & Co., New York, is lead manager of the private sale, which is comprised of senior unsecured obligations of a holding company. The debt securities are subordinate in repayment priority to outstanding debt at the operating and holding company levels, according to Moody’s Investors Service Inc., New York.
The discount notes are being sold below their face value at maturity, and they won’t pay interest to investors for the first five years. This structure gives Telesystem some breathing room before it must start making payments to the note buyers.
Telesystem also has $360 million of contributed equity, including $125 million garnered from an initial public offering in May. The company’s major shareholders include Telesystem Ltd. and Rogers Telecommunications Inc., an affiliate of Rogers Communications Inc.
The carrier has interests in Global System for Mobile communications cellular licenses covering a population of 149 million in parts of Brazil, China and India and all of Romania. The only one of its cellular systems in commercial operation is in Romania, where there now are 10,000 subscribers in eight major cities since the April launch.
The company also owns majority stakes in licenses covering a population of 157 million for analog SMR systems in France, Germany and Spain, and analog and digital SMR networks in the United Kingdom, with a total analog customer base in these countries of between 50,000 and 60,000. It has applied for a digital SMR license in France and plans to provide digital SMR services across Europe next year on the open TETRA standard for this technology.
Although most of Telesystem’s operations aren’t yet fully deployed or cash flow positive, a notable exception is its paging interests in Mexico and the Netherlands, according to Standard & Poor’s Corp., New York. About 200,000 subscribers are on these systems at present.
For the longer term, however, Moody’s said Telesystem’s “GSM cellular operations in emerging markets should represent the centerpiece of the company’s future cash flow generation.”
Moody’s assigned a speculative grade Caa1 rating to the issue in one of the first examples of the New York rating agency’s recently announced policy of adding a number to further refine the Caa category. A Caa1 rating ranks at the high end of that general classification, which is at the bottom of the speculative grade grouping.
The new classification system, made in part in response to requests from institutional investors, also reflects several trends in the corporate bond markets, Moody’s said. These include “the dramatic expansion of the lower end of the high-yield market in terms of the number and types of issues and the increasing investor appetite for this grade of risk, [as well as] the growing diversity of risk profiles within the Caa category.”
Standard & Poor’s, which already uses plus and minus signs to indicate relative standing within a rating group, assigned a low-end speculative grade of B- to the issue.
The rating “reflects the substantial business and financial risks inherent in [Telesystem’s] start-up operations,” said a report by Edward Lawrence, a Toronto-based analyst for S&P. “These risks are somewhat mitigated by pent-up demand for telecommunications services in developing markets and the diversity of the company’s interests.”
