Chinese lenders bail out RComm
Loans
Talk of trade deal in return for funds
Anil Ambani’s Reliance Communications has been saved from a potential financing crunch by a surprise US$1.1bn loan from a group of Chinese state-owned banks. RComm will use the new funds to repay a US$1.2bn convertible bond issue due for redemption on March 1, putting an end to fears of a potentially devastating default.
The loan has raised eyebrows as a rare instance of Chinese support for one of India’s biggest business groups. China Development Bank, Export-Import Bank of China, Industrial and Commercial Bank of China and other Chinese lenders provided the entire refinancing, according to an announcement from RComm on January 17.
“Chinese banks have a lot of cash and they tend to throw it around, but they only do so when there is something packaged with it”
RComm “will benefit from an extended loan maturity of seven years and attractive interest cost of about 5%”, said a company press release.
The new loan comes as European banks – RComm’s traditional relationship lenders – are scaling back exposure to Indian borrowers. RComm has taken a hit from India’s ongoing telecoms corruption scandal, with police questioning chairman Anil Ambani last year, and its existing syndicated loans feature prominently on axe sheets in circulation from European banks.
However, bankers with direct knowledge of the matter said that, in return for the loan from the Chinese policy banks, RComm was expected to purchase equipment from the country’s PC companies, such as Huawei and ZTE Corp.
“Chinese banks have a lot of cash and they tend to throw it around, but they only do so when there is something packaged with it,” said a veteran loans banker in Singapore. “It is a great deal for Reliance Communications as it provides another source of liquidity when traditional ones are drying up. However, there was more in it than just pure returns that incentivised the Chinese lenders.”
This is not the first instance of such an arrangement. Late last November, Sasan Power, the project company for the Sasan ultra mega power plant and a subsidiary of RComm affiliate Reliance Power, completed a US$2.2bn refinancing, including a US$1.114bn 13-year tranche. Bank of China, CDB and Chexim took US$1.06bn of that tranche, for which Chinese export credit agency Sinosure provided cover.
That was the first Indian loan to which Chinese lenders had committed such large amounts, after they began to take lead roles on Indian deals in 2007. Prior to Sasan Power, the take of Chinese lenders as MLAs on Indian deals amounted to just US$218.26m from six transactions in three years.
More redemptions looming
Bankers warned, however, that the Chinese loan was unlikely to provide a template for other Indian companies to follow.
“The names that have trade links with the PRC will appeal more to the Chinese banks. Those that think they can meet the criteria are being marketed to the Chinese banks,” said a banker with a foreign bank in Mumbai.
More than two dozen Indian companies in the BSE-500 index face redemptions on foreign currency convertible bonds worth a combined Rs330bn (US$6.5bn) at end-March 2013, according to brokerage Edelweiss. These include RComm’s US$925m outstanding CB, which the loan will repay.
Entities without ties to China must look elsewhere and may have to rely on Indian banks to overcome their refinancing pressure.
For example, Orchid Chemicals & Pharmaceuticals is in the market, through sole bookrunner Axis Bank, for a US$100m 6.5-year loan that will partly refinance a CB issue of US$170m coming due in mid-February. The facility, marking Orchid’s debut in the offshore loan markets, pays a top-level all-in of 490bp over Libor, based on an average life of five years.
Unless other Indian borrowers can somehow attract lenders, they will be at the mercy of worsening conditions that have led to shrinking liquidity in the loan markets and a rise in pricing.
“Top-tier Indian firms will have to pay between 250bp and 300bp over Libor to borrow five-year money offshore. Even at that kind of pricing, there isn’t a lot of liquidity available,” said a Hong Kong-based loan banker. More than US$20bn of Indian debt is set to mature in 2012 and, of that, about US$6bn each of CBs and rupee loans are up for redemption, with the balance comprising offshore loans.
(Additional reporting by Kane Wu, Maggie Chen and Archana Narayanan)
