New Delhi: Chinese state banks have agreed to lend $1.18 billion to Indian billionaire Anil Ambani's debt-laden mobile carrier Reliance Communications to repay overseas convertible bonds due for redemption on March 1.
India's No 2 mobile operator by subscribers had $6.5 billion in debt as of end-September and ferocious competition has seen it post nine straight quarters of declining profits.
It has struggled to unload its telecoms tower business, which is up for sale as the company looks to raise funds to cut its debts. The company is said to be asking about $4 billion for its Reliance Infratel tower unit.
The bond repayment had weighed on the firm's share price - which has slumped 90 percent in four years - as talks about the sale of the tower business dragged on and global funding conditions worsened amid the European debt crisis.
"The company has been trying several things ... but as they were running out of options they had to go for refinancing," said Jagannadham Thunuguntla, strategist at SMC Global Securities in New Delhi.
Reliance Communications said Industrial and Commercial Bank of China (601398.SS), China Development Bank Corp, Export Import Bank of China and other banks provided the refinancing of the foreign currency convertible bonds (FCCBs).
Anil Ambani, the younger brother of Mukesh Ambani, Asia's richest man, has tapped China's cash-rich lenders before.
Last year, China Development Bank arranged a $3 billion syndicated loan for the mobile firm and Reliance Power, also part of Anil Ambani's Reliance Group. That funding was used in part to buy Chinese telecom and power equipment.
China to the rescue
Barclays Capital said the loan for Reliance Communication removes a source of "nervousness" around the stock and resolves short-term liquidity problems for the company.
The terms of the deal and the banks involved "are all additional positives," Barclays Capital analysts wrote.
The loan has an "attractive" interest cost of about 5 percent and 7-year maturity, Reliance Communications said.
While that's less than Reliance Communications would pay at home, where interest rates are high after 13 policy rate increases in less than two years, it's more than the 260 basis points over Libor (which was then just above 40 basis points) it paid on a $255 million overseas loan in May 2011.
By comparison, Tata Motors paid 280 basis points over Libor late last year for a $300 million 7-year overseas loan. A domestic bond for Reliance Communications would cost it roughly 13 or 14 percent, market sources said.
Reuters reported last week that Reliance Communications was in talks with China Development Bank for a syndicated loan to redeem the bond.
ICBC is the mandated lead arranger and sole bookrunner, while China Development Bank and EXIM Bank of China are both mandated lead arrangers, of the deal, sources with knowledge of the matter told Reuters on Tuesday. They did not want to be identified as the information has not been publicly disclosed.
Elusive tower deal
Anil Ambani, who assumed control of businesses ranging from power to telecoms after a bitter 2005 split with his brother, has seen his net worth erode in the last few years as shares in his companies skidded, partly on worries over their debt.
A unit of his company and three executives of Anil Ambani's group are among more than a dozen people charged in a CBI probe into a multi-billion dollar telecom scandal involving the alleged sale of lucrative telecoms licenses at below-market prices.
Anil Ambani himself was questioned last year and also appeared before a parliamentary panel investigating the scandal. All the accused have denied any wrongdoing.
Reliance Communications has long been trying to unload its telecoms tower business. A deal to combine the business with GTL Infrastructure collapsed in 2010.
Sources have said Reliance Communications is in talks with U.S. buyout giants Carlyle Group and Blackstone Group on a tower deal that could be worth more than $3 billion, but they have said a deal was not close to completion.
Reliance Communications said last May it had received several offers for the tower arm. In September, Anil Ambani told shareholders the firm was in an "advanced stage" of negotiations with a number of consortiums and said he was confident the firm would be able to "move forward expeditiously" on a deal.
Anil Ambani is looking to secure a leasing agreement from his brother's Reliance Industries for the towers before pressing forward with a sale, the sources have said.
Bond redemptions loom
More than two dozen Indian companies in the BSE-500 index face redemptions on foreign currency convertible bonds worth a combined 330 billion rupees by end-March 2013, according to research by Indian brokerage Edelweiss.
A global dollar funding crunch as western banks conserve capital and the rupee's 16 percent fall in 2011 make for a challenging refinancing environment for Indian companies.
The Reliance Communications bonds were issued in February 2007 with a conversion price of 654 rupees a share, when markets were booming and its shares traded at around 410 rupees.
Cut-throat competition among India's mobile phone operators has since hit earnings and the stock has plunged.
Reliance Communications shares rose as much as 5.7 percent to 4-month highs after the news on Tuesday, before paring some gains to close at 88.85 rupees, up 2.78 percent on the day, but still a fraction of the conversion price.
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