denotes premium content | Jan 6 2009 
Feature
posted 23 Feb 2005 in Volume 8 Issue 4
Lucent Telecoms, India: Providing solutions on all sides
MLA: JPMorgan Chase
Exporter: Lucent Technologies, India
Deal size: LCs $30m
Tenor and payment schedules: one-year commitment period plus three years financing/bullet repayment
Closing: March 2004
Disbursement: scheduled from August 2004 through March 2005
This deal is innovative in many ways. In the first instance, it is structured as a multicurrency financing and involves 12 Indian banks ranging from top tier to middle tier. Embedded in the structure is an underwritten commitment to Lucent, similar to a syndicated facility.
JPMorgan was able to structure the deal by employing a variety of sophisticated risk-mitigation tools, including a credit-default swap and distribution in the secondary-bank market. It is the first deal of its kind for Lucent, which will use the funds to finance a telecoms project in India.
“We were awarded the mandate based on our understanding of the local market and providing a risk-mitigation solution that gives a commitment to confirm and finance the medium-term LCs to be issued possibly by one of the 12 banks in India,” says Astar Saleh, Asia head of structured and network trade for JPMorgan. “Our understanding of the local market was also vital in structuring an optimum import-financing solution for the buyer. In addition, we assisted in drafting the LC text to further mitigate the documentary-risk element of the deal.”
The exporter needed to secure a committed risk-mitigated facility prior to the delivery of goods to the buyer. The total value of LCs to be confirmed was $30m, with both a US dollar and Indian rupee element. The importer required a three-year financing.
Thus, JPMorgan’s solution had to take into consideration several requirements, including the importer’s significant and complex cash-flow-management needs, a flexible funding rate and multiple-currency funding and tenor. The bank put together a risk-mitigation structure combining distribution in the secondary-bank market, a credit-default swap and partnership with a local financial institution (to arrange the three-year funding for the local currency element).
The LCs were therefore structured as acceptance LCs payable to the supplier at sight with a bullet principle payable three years from shipment and interest on a semi-annual floating basis. In addition, the LCs were to be issued by the group of the importer’s banks.
On the back of this deal, the bank has been asked to provide a risk-mitigation solution for Lucent’s upcoming projects in India. It is currently working on a larger deal with a similar structure.
