Reliance Communications to receive Chinese funding for 3G spectrum

A memorandum of understanding has been signed between the Indian operator Reliance Communications and the China Development Bank Corporation which will see the former receive funding of US$1.93 billion.

The two entities took Chinese Prime Minister Wen Jiabao’s visit to India as an opportunity to sign the agreement. Reliance will spend the majority of the money on re-financing the sum paid to acquire 3G spectrum – a fee of around US$1.33 billion.

Up to US$600 million of the money granted by the agreement will be spent on equipment purchased from Huawei and ZTE – this is in addition to an “already substantially utilised” US$750 million facility for the purchase of hardware and services from the two Chinese firms.

Pending a regulatory green light, a group of Chinese financial players – CDBC among them – will provide the loan, which must be repaid within ten years.

A Reliance executive was quoted in the Financial Times saying “the Chinese do a great job when it comes to financing deals...We save about US$100 million a year compared to what we would [be charged in interest] in India – that’s a lot of money.”

Reliance launched 3G services earlier this month, becoming only the second private operator in India to do so. It spent a total of US$1.89 billion on purchasing 3G spectrum across 13 of India’s telecoms circles – the third largest amount spent in the auctions (only Bharti Airtel and Vodafone Essar spent more).

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