Sistema Shyam Teleservices Ltd (SSTL), a subsidiary of AFK Sistma, has allotted all of its inconvertible redeemable preference shares, according to a report on a website run by SSTL minority shareholders. The report says that as of March 31, 2013, 100 per cent of the preference shares (6 million in total) has been acquired for 1.05bn dollars by Insitel, a subsidiary of the Singapore-registered Insitel company. The company is an AFK fund which the holding uses to refinance SSTL debt, Sistema representative Yuliya Belous has said. She has also confirmed that all SSTL preference shares have been allotted. 
SSA Fund is listed in Sistema reporting as a creditor; in December 2012 the fund issued a call loan of 17.2bn roubles (565.9m dollars) to Sistema. The same registration address in Singapore is used by the TCF Projects fund, which is 100-per-cent owned by Sistema, according to AFK reports. The fund appeared on the list of Sistema affiliated entities only in late 2012. In the Q1 2013 report its book value was estimated at 36.7bn roubles (1.12bn dollars at the Central Bank exchange rate on Saturday). This is one of Sistema’s three largest financial investments reflected in its reports, along with the MTS shares (205bn roubles) and Bashneft stock (215bn roubles). 

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The allotment of preference shares took SSTL a year to complete; the decision to increase the company’s authorized capital was made by the shareholders meeting on 30 March 2012. The inconvertible preference shares, which the company will have to redeem after 10 years, are essentially a form of loan financing, a source at AFK explains. He says that this is a way of attracting foreign financing without violating the restrictions on the share of foreign capital in telecommunications companies (see insert). 
Belous says that Sistema uses both of the Singapore-registered companies to refinance SSTL debt. He explains that when AFK founded TCF Projects, it invested a large sum of money which matches the size of the SSTL debt guaranteed by Sistema. Later on TCF Projects set up SSA Fund, whose Indian subsidiary has now bought all SSTL preference shares. The leftover funds were returned by SSA Fund to Sistema as a call loan. Singapore is a transparent jurisdiction, which also happens to offer very favourable terms for investment in India because it has a double taxation avoidance agreement with the country, says Belous. 
SSTL was planning to use the money generated by the allotment of preference shares to partially refinance its debt portfolio by repaying high-interest loans, according to Belous. He says that some of the money has already been used to finance operational costs. Morgan Stanley analysts had previously estimated SSTL’s annual operational costs at 300m dollars. 
The buy-back program began in September 2012, when SSTL debt stood at 1.7bn dollars, says Belous. According to AFK reporting, as of March 31 2013 SSTL had 853m dollars of outstanding debt. This means that the company has spent about 850m dollars of the money received from the allotment of preference shares on refinancing, and another 200m dollars on operational costs. 
The refinancing operation was carried out amid the crisis that broke out on the Indian telecoms market last year. On 2 February 2012 the Indian High Court annulled 122 spectrum licences issued in 2008 to 11 operators, including 21 out of the 22 licenses owned by SSTL. The court had decided that the procedure for awarding the spectrum licences was not sufficiently transparent, and that the prices paid for the licences were too low, ordering the government to hold a new auction. That auction was held in March 2013; SSTL has won eight licences, and can now continue to operate in nine out of India's 22 telecoms districts.