Indian software services group Tech Mahindra, which is awaiting regulatory approval to buy Satyam Computer Services, has raised $175 million through bonds and commercial paper, sources said on Wednesday. 

It sold Rs 600 crore ($120 million) of four- and five-year bonds carrying a coupon rate of 10.25 percent at face value and Rs 275 crore of one-year commercial paper with a coupon rate of 8.50 percent, the sources told reporters. 

Kotak Mahindra Bank was the sole arranger to the issues, Tech Mahindra's first for 2009. The funds raised are equivalent to nearly one third of the total potential cost of a controlling stake in fraud-hit Satyam. 

Top-rated five-year corporate bond yields were quoting around 7.89-7.97 percent, according to a note from broker Derivium Capital. Analysts said the pricing was adequate given they presumed the proceeds would be used to fund the Satyam deal and needed to be raised quickly. 

Tech Mahindra will pay $351 million for a 31 percent preferential allotment of new shares in Satyam and will make an open offer for a further 20 percent of the fraud-hit company at a cost of up to around $225 million. 

This is a daunting and a challenging acquisition for Tech Mahindra which has a difficult task of raising finances for an expensive deal, say industry observers.

"If the legal liabilities are not taken out of the equation, and assuming Satyam will make just 3% margins as Raju had said in his letter, this is an expensive deal. The answer really is in the income statement and balance sheet numbers that we need to wait on. Even if Satyam makes FY09 profits equivalent to 6% of their FY08 stated revenues, it is still expensive. The deal starts making more and more sense if the margins are higher", said Manohar Athreya, Head - Investment Banking (Technology sector) at o3 Capital, a Mumbai based boutique investment bank.

Echoes an analyst with a Mumbai based broking firm, " Nearly 575m of cash is needed versus $110m that Tech Mahindra has as of now. TechM will have to arrange the money by next  21st April. TechM will  likely  have to raise debt to finance this acquisition. TechM can get another strategic investor but none of Satyam's assets can be sold piecemeal. It will be difficult for them raising finances."

Tech Mahindra is required to deposit in escrow account the total funds necessary to conssumate the public offer by 21 April, otherwise the next highest bidder will be considered the highest bidder.

A Tech Mahindra spokesman declined comment when asked if the company planned to sell more debt, although last month it got ratings for planned bonds and short-term debt worth Rs 950 crore and bank facilities worth Rs 535 crore. 


Bharat Doshi, chief financial officer at parent Mahindra and Mahindra, said on Monday the firm had more than Rs 700 crore of cash and the potential to raise debt, for which it had already received firm underwritten commitments, to fund the Satyam deal. 

Based on cash holdings and the deal value, Tech Mahindra may have to raise debt of about Rs 2,100 crore. 

Indian rating agency CARE last month assigned its top 'AAA' and 'PR1-plus' ratings to Tech Mahindra's planned issues. 

But Fitch Ratings withdrew its ratings on Tech Mahindra last month, citing uncertainties of the financing of the Satyam deal.

D.R. Dogra, deputy managing director of CARE, said its ratings factored in all issues relating to the Satyam deal, and said developments were being closely watched. 

"Certainly we are keeping our eyes and ears open because this is a very high rating. But so far there is nothing in our eyes that can change the kind of rating that we have given the company at this stage," Dogra said. 

Tech Mahindra posted net profit of Rs 223 core on net sales of Rs 1,132 crore for the quarter ended Dec. 31. 


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