Saudi Telecom (STC) has resolved a tussle with creditors over a $1.2 billion loan tied to its Indonesian unit, Axis Telekom, by offering to repay about 90 percent of the loan mainly through a sale of the arm, sources familiar with the matter said.
Creditors, including HSBC Holdings, Deutsche Bank and Citigroup Inc, have been battling with STC to avoid potential losses of up to $600 million after the state-owned firm asked banks to restructure the loan, to reflect the value of the business.
STC, which owns 84 percent of Axis, is in advanced negotiations with Axis' rival XL Axiata on a potential sale of the unit and proceeds from the sale will be largely used to repay the loan, the sources said, speaking on condition of anonymity as the matter is not public.
The sources declined to reveal the terms of the Axis deal, citing strict confidentiality surrounding the terms and the sensitivity of the matter. STC spokesmen in Riyadh did not reply to several emails and phone calls seeking comment. HSBC, Deutsche and Citigroup declined to comment.
The complex loan negotiations highlighted the risks which banks incur in extending loans to state-owned firms in the Middle East, and also signalled how banks, faced with tougher capital rules, had become less willing to accept losses.
In response to Reuters queries about a potential agreement on the sale of Axis, XL Axiata's CEO Hasnul Suhaimi said in a text message: "Not yet, we're still in the negotiation process." He did not elaborate.
US investment bank Lazard is advising STC on the Axis sale, while boutique advisory firm Moelis was hired by the telecoms firm for loan negotiations.
Axiata is a unit of Axiata Group Bhd, Malaysia's biggest mobile phone operator by market value.
"It's a bumper deal for the banks. One would take it and run any day. There have been restructurings in the region where banks thought they were lucky to get 20 cents on the dollar," one banking source familiar with the matter said.
A potential acquisition of Axis would help consolidate Indonesia's telecom sector where about 10 mobile operators are vying for customers in a market where mobile penetration reached 115 percent by 2012-end.
STC backed the loan, taken out in 2011 to expand Axis Telekom's operations, through a "letter of support" - an informal backing usually provided by a parent company to lenders when its subsidiary is seeking financing.
The problems with the loan started about three to four months ago, when STC's new management asked banks to restructure it. STC's chief executive resigned in March, leading the company's chairman Abdulaziz al-Sugair to become acting CEO, while the heads of its international and domestic operations have also quit in the past 18 months.
The banks argued that a "letter of support" for the loan from STC obliged the firm to honour it in full, which STC was refusing to do, according to the sources.
The banks, led by Deutsche Bank, threatened to sue STC if it failed to honour the loan. The loan was structured under English law which means the banks could pursue legal options outside Saudi Arabia if need be.
HSBC and Deutsche each have around $250 million of exposure to the Axis loan, while China Development Bank has about $350 million, two sources said in August.
One source familiar with the matter said Citigroup had an exposure of $75 million. China Development Bank was not available for comment, while all other lenders declined to comment on their exposure to the loan.
The Axis loan included a $450 million sharia-compliant murabaha facility arranged by Deutsche Bank and HSBC and underwritten by HSBC's Saudi affiliate, Saudi British Bank . A murabaha is a cost-plus-profit arrangement.
It also included a $400 million facility for equipment purchases from China's Huawei, underwritten by China Development Bank, and a $350 million facility for equipment purchases from Ericsson, arranged by HSBC and backed by EKN, the Swedish Export Credit Agency.