Carriers & Vendors Feel Capital Squeeze

The turbulence in global financial markets is making fundraising more difficult for telecom network expansion, according to bankers and vendors attending the TMT Finance & Investment Asia conference in Hong Kong Tuesday.

While experts at the conference agreed operators were currently capable of funding their expansions, the cost of capital was becoming "very expensive."

Even Huawei Technologies Co. Ltd. , the fast-growing Chinese vendor with a US$30 billion line of credit from Chinese banks, says it's having trouble stitching up deals because of the increasing difficulties in obtaining U.S. dollar loans. (See Huawei's Lucky Number: 30B.)

Robert Wallin, executive director of customer financing solutions at Huawei Tech Investment, says the number of banks offering U.S. dollar funding is "diminishing quickly." The Huawei man is "a little bit concerned that the banking market is slowly but surely fading away. When the TMT banking world was a little bit wider it was easier to find a bank. Now the universe is shrinking. ... We are looking at Asian banks to help us."

Sherzad Desai, head of telecom and media at Australia and New Zealand (ANZ) Banking Group, says the trend is "making financing very expensive for operators and for vendors supporting operators."

The problem has grown during the past 12 months as the eurozone crisis has deepened, bankers told Light Reading. "It's a strange situation where it's actually easier to get financing in an emerging market than a U.S. dollar deal in an advanced market," Wallin says.

Huawei, he notes, gets "great support" -- loans to customers to help them buy Huawei gear -- from Chinese banks for projects around the world. “But if, say, I am doing a deal with BT and BT wants to do it in U.S. dollars, Chinese banks aren't going to do that,” notes Wallin.

Additionally, Chinese banks don't always have the expertise or the local knowledge required to support a network contract. Wallin says the cost of credit from European banks is particularly high, with Spanish banks offering loans at 400 basis points (4 percent), about twice the rate of Singapore banks. The alternative is to go to banks such as JP Morgan to raise funds, but that comes "at a price," he adds.

The fat credit lines provided by state-owned Chinese banks to Chinese vendors have provoked private and sometimes public criticism from their competitors, but Wallin says Huawei is not doing vendor financing of the kind offered by European and North American vendors in the dotcom years, in which they borrowed money and then lent it directly to their customers. "We are trying to avoid that. ... We are not a bank. We do provide credit enhancement in those cases where risk is an issue and we try to use our [financial] network to offer operators the best possible price," states the Huawei man.

He says telcos often seek financing as part of their balance sheet management. "They may want to preserve the cash for dividends, they want to build up a war chest for a rainy day or for a potential acquisition because valuations of competitors are coming down," states Wallin.

— Robert Clark, freelance editor, special to Light Reading

digits 12/5/2012 | 4:50:00 PM
re: Carriers & Vendors Feel Capital Squeeze

Roll up, roll up -- we welcome all comments that are not inappropriate...

Mark Sebastyn 12/5/2012 | 4:50:00 PM
re: Carriers & Vendors Feel Capital Squeeze

I think you guys could sell tickets to the comment thread that this article will spawn.

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