South Africa's second fixed line operator, Neotel, a subsidiary of VSNL has signed a Rs1,300-crore bridge debt facility with a funding consortium of South African financial institutions.

The facility has been fully underwritten by the funding consortium comprising Nedbank Capital, the investment banking business of the Nedbank Group, Investec Bank Ltd and the Development Bank of Southern Africa.

The consortium will jointly finance Rs900 crore of the debt, while the Industrial Development Corporation of South Africa will finance a further Rs400 crore.

The debt will be provided on a project finance basis with a term of 18 months. This is the largest non-recourse facility for a start-up telecommunications project in the region, and one of the largest in South Africa to date. Attractive terms for the debt have been offered by the financial institutions to ensure that Neotel is allowed adequate time to establish itself in the market.

Neotel will re-finance the debt with a long-term facility after 12 months. Nedbank Capital, Investec and the Development Bank of South Africa have been appointed as the mandated lead arrangers for the long-term facility, which will be in excess of Rs2,600 crore. The debt is complemented by in excess of Rs1,300 crore of equity that will be contributed by the Neotel shareholders.

The funds will be utilised by Neotel for building its network, which at present consists of 1,300km of optic fibre cable in the six main metropolitan areas. This infrastructure was purchased from Transnet for Rs165 crore earlier this year.

Neotel currently offers international voice and data transit services for other telecommunications operators. The roll out of additional services is on track and initial enterprise services will be available in December this year. Consumer services in select geographic areas will be offered in April-May 2007.

Ajay Pandey, managing director, Neotel, said that the finalisation of the funding ensures that Neotel continues to remain on track with the roll out of its promised services.

Kagiso Financial Services, in association with Rothschild South Africa, has acted as financial advisers to Neotel. The legal advisor to Neotel is Deneys Reitz, while Bell Dewar & Hall have acted on behalf of the funding institutions.