DFF - Telecom Armenia

Location:

Armenia

Project number:

52768

Business sector:

Telecommunications, Media and Technology

Notice type:

Private

Environmental category:

B

Approval date:

18 Jan 2022

Status:

Signed

PSD disclosed:

03 Feb 2022

As per section 1.4.2 (iii) of the Directive on Access to Information: "For Projects approved by Bank management where the Board of Directors has delegated the approval authority, the PSD shall be disclosed at the start of the relevant no-objection notification period to a member country of the Bank in accordance with Article 13 (iii) of the Agreement Establishing the EBRD."

Project Description

An up to USD 20m participation in an up to USD 45m senior secured facility in favour of Telecom Armenia, to refinance the Company's existing debt - largely resulting from its leveraged acquisition by Team LLC, and to finance its growth capex plan, including network expansion in rural areas. 

Project Objectives

The proceeds of EBRD's USD 20m loan shall be allocated to i) financing fibre network capex in the amount of USD 3.0m, as well as ii) refinancing existing debt in the amount of up to USD 17.0m (together the "Project").

Transition Impact

ETI score: 63

Competitive: As of 2019, FTTH penetration stood at 7.7% in Armenia. The Project will support the rollout of Telecom Armenia's ultra-high speed FTTH (1- 10 Gbps), including to secondary cities and rural areas. This will push the coverage rate of this modern ICT infrastructure to c. 19.2% in the country. Thus, the Project will lead to more reliable and faster internet connectivity across Armenia, as well as extend connectivity to underserved areas. Telecom Armenia's network is fully open to competitors on a wholesale basis, and the Company does not benefit from public support. Green: The Project supports energy-efficient upgrades to the Company's fixed and mobile networks, with USD 3m of the loan proceeds to be directly applied to such investments. In addition, the proposed financing features a long tenor and a sculpted repayment profile, which will free-up internally-generated cash for funding further network upgrades. The upgrade of the fixed network involves replacing the current twisted copper cable network infrastructure with a fibre network including next generation Passive Optical Networks (PON) and fibre-to-the-home (FTTH) solutions. The upgrade of the mobile network involves expanding the Company's 4G coverage and capacity by adding 4G base stations and sectors in existing 2G/3G sites. Through its capex financing component, the Project is estimated to result in primary energy savings of 1.13 PJ/year, corresponding to 28,859 tonnes of CO2e savings per year. The Project is 15% GET eligible.

Client Information

TELECOM ARMENIA CJSC

Telecom Armenia CJSC ("Telecom Armenia" or the "Company") is a leading provider of fixed-line and mobile telecommunication services in Armenia.

EBRD Finance Summary

USD 20,000,000.00

Refinancing of existing debt: 17,000,000; EBRD-financed capex: USD 3,000,000

Total Project Cost

USD 45,000,000.00

Additionality

Financing structure: EBRD offers a tenor, which is longer than available to the client in the market on reasonable terms and conditions. The long tenor tenor, beyond what can be provided by private-sector lenders, is critical for Telecom Armenia to execute its transformational business plan. EBRD will take on a significant share of the proposed syndicated facility to bridge the financing gap necessary to support ambitious capex plans. 

Risk sharing: EBRD provides comfort to clients and investors, financial or strategic, by mitigating non-financial risks, such as country, regulatory, project, economic cycle, or political risks. EBRD provided technical cooperation support for Project preparation, in the form of a consultant assignment, to prepare an extensive commercial due diligence report and contributed into financial structuring of the transaction to accommodate for required investment plans. The Project involves the overhaul of Telecom Armenia's legacy xDSL and 2G/3G networks, and the Company's subsequent strategic repositioning. As this business plan is based on a turnaround story and associated executions risks, lenders derived significant comfort from the due diligence report by a reputable telecom consultant, specifically commissioned by EBRD. The report crucially included a technology review of the Company's existing network and capex plan, as well as a commercial analysis of Telecom Armenia's forecasted revenues and cost. Without such a report, lenders would have been unable to assess the viability of the Company's business plan.

Environmental and Social Summary

Categorised B (2019 ESP) Environmental and Social Due Diligence (ESDD) has been carried out internally and consisted in a review of the completed ESDD questionnaires, follow up questions and a review of various documents. ESDD demonstrated that the Company is compliant with national laws and has adequate Environmental and Social (E&S) risk management capacity to implement the project in compliance with the EBRD E&S performance requirements (PRs). E&S risks associated with the Company's operations are limited and can be addressed through standard mitigation measures including those stipulated in the project Environmental and Social Action Plan (ESAP). The Company will be required to comply with PRs and submitted an annual E&S report to the Bank.

ESDD was based on the reviews of the Corporate, Covid-19 and Traffic & Road Safety questionnaires. Technical procedures and Company policies were also reviewed. ESDD demonstrated that the Company has arrangements in place to manage E&S issues and are currently further developing their environmental management system. Human resources polices are largely in line with PR2 and including an employee grievance mechanism and an employee code of conduct. The Company recognises employees' right to organise. To support the reduction in CO2 emissions. The Company has installed energy saving light bulbs at all offices and solar panels (PV) units at a number of telephone switch stations. The Company aims to further increase the numbers of PV at other stations in future years. Occupational Health and Safety (OHS) risk assessments for high-risk work activities are undertaken for activities such as working at heights. The Company also delivers specific OHS training for workers involved in these high-risk working activities. To support the management of occupational road risks associated with the Company's vehicle fleet, the Head of Transportation is responsible for road safety and driver performance is monitor with in vehicle monitoring systems (IVMS) installed in Company vehicles. The Company confirmed that some upgrade and installation work is to be carried out within the Sevan National Park, designated protected area. This will require the installation of equipment to existing telecom towers and rooftop base stations and fibre optical cables installed through existing underground ducts and overhead infrastructure and overhead poles and will not involve any civil or construction work. No modification is planned to existing infrastructure. The Company discloses E&S information within their annual reports and includes information on the local social programmes they support including local business start-ups and innovation and also information on Environmental progress with reducing CO2 emissions.

An ESAP has been developed for the project and will be agreed with client prior to project signing. The ESAP includes further development of the Company's existing Environmental, Occupational Health and Safety management systems to align with ISO standards, the appointment of a dedicated person to manage the Company's Environmental function and to review existing partner provisions and to include E&S arrangements within. The client is also required to consult with all key stakeholders associated with the Sevan National Park prior to any work to ensure the planned work aligns and does not impact the Sevan National Park conservation objectives determined by the Management Plan and the work is undertaken under direct supervision of the management authority of the National Park. The Bank will monitor the project's E&S performance by reviewing annual E&S reports in addition to conducting site visits if deemed necessary.

Technical Cooperation and Grant Financing

Donor-funded TC: Commercial due diligence in the amount of EUR 75,000 (confirmed), funded by the EBRD Shareholder Special Fund's Knowledge Economy Initiative.

Client contributions: The Client contributed over EUR 15,000 to legal and tax due diligences.

Company Contact Information

Arpine Chalkyan - Head of Strategic Programs and Corporate development
arpine.chalkyan@telecomarmenia.am
+374 95 988 723
https://www.beeline.am/en/
Azatutyan Ave., 24/1 Building, 0014, Yerevan, Armenia

Implementation summary


PSD last updated

03 Feb 2022

Understanding Transition

Further information regarding the EBRD’s approach to measuring transition impact is available here.

Business opportunities

For business opportunities or procurement, contact the client company.

For business opportunities with EBRD (not related to procurement) contact:

Tel: +44 20 7338 7168
Email: projectenquiries@ebrd.com

For state-sector projects, visit EBRD Procurement:

Tel: +44 20 7338 6794
Email: procurement@ebrd.com

General enquiries

Specific enquiries can be made using the EBRD Enquiries form.

Environmental and Social Policy (ESP)

The ESP and the associated Performance Requirements (PRs) set out the ways in which the EBRD implements its commitment to promoting “environmentally sound and sustainable development”.  The ESP and the PRs include specific provisions for clients to comply with the applicable requirements of national laws on public information and consultation as well as to establish a grievance mechanism to receive and facilitate resolution of stakeholders’ concerns and grievances, in particular, about environmental and social performance of the client and the project. Proportionate to the nature and scale of a project’s environmental and social risks and impacts, the EBRD additionally requires its clients to disclose information, as appropriate, about the risks and impacts arising from projects or to undertake meaningful consultation with stakeholders and consider and respond to their feedback.

More information on the EBRD’s practices in this regard is set out in the ESP.

Integrity and Compliance

The EBRD's Office of the Chief Compliance Officer (OCCO) promotes good governance and ensures that the highest standards of integrity are applied to all activities of the Bank in accordance with international best practice. Integrity due diligence is conducted on all Bank clients to ensure that projects do not present unacceptable integrity or reputational risks to the Bank. The Bank believes that identifying and resolving issues at the project assessment approval stages is the most effective means of ensuring the integrity of Bank transactions. OCCO plays a key role in these protective efforts, and also helps to monitor integrity risks in projects post-investment.

OCCO is also responsible for investigating allegations of fraud, corruption and misconduct in EBRD-financed projects. Anyone, both within or outside the Bank, who suspects fraud or corruption should submit a written report to the Chief Compliance Officer by email to compliance@ebrd.com. All matters reported will be handled by OCCO for follow-up. All reports, including anonymous ones, will be reviewed. Reports can be made in any language of the Bank or of the Bank's countries of operation. The information provided must be made in good faith.

Access to Information Policy (AIP)

The AIP sets out how the EBRD discloses information and consults with its stakeholders so as to promote better awareness and understanding of its strategies, policies and operations following its entry into force on 1 January 2020. Please visit the Access to Information Policy page to find out what information is available from the EBRD website.

Specific requests for information can be made using the EBRD Enquiries form.

Independent Project Accountability Mechanism (IPAM)

If efforts to address environmental, social or public disclosure concerns with the Client or the Bank are unsuccessful (e.g. through the Client’s Project-level grievance mechanism or through direct engagement with Bank management), individuals and organisations may seek to address their concerns through the EBRD’s Independent Project Accountability Mechanism (IPAM).

IPAM independently reviews Project issues that are believed to have caused (or to be likely to cause) harm. The purpose of the Mechanism is: to support dialogue between Project stakeholders to resolve environmental, social and public disclosure issues; to determine whether the Bank has complied with its Environmental and Social Policy or Project-specific provisions of its Access to Information Policy; and where applicable, to address any existing non-compliance with these policies, while preventing future non-compliance by the Bank.

Please visit the Independent Project Accountability Mechanism webpage to find out more about IPAM and its mandate; how to submit a Request for review; or contact IPAM  via email ipam@ebrd.com to get guidance and more information on IPAM and how to submit a request.

 

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