Three Chinese banks have come to the rescue of the debt-ridden Indian operator Reliance Communications (RCom). The operator has received financing of around US$1.2 billion from the triumvirate in order to make a repayment for a convertible bond due in March.
The three banks providing the loan are the Industrial and Commercial Bank of China Ltd (ICBC), Development Bank Corporation (CDB) and Export Import Bank of China (EXIM). The loan has an interest rate of roughly 5% and a maturity period of seven years. It has been described by RCom as "the largest refinancing in the history of Foreign Currency Convertible Bonds (FCCBs)" by an Indian company.
The refinancing operation has averted a potential default for RCom. The operator originally intended to convert its loan into stock once it had matured, but RCom’s share prices have plummeted since the loan was first issued in 2007 – a time at which India’s stock market was flourishing. Almost the entire amount is now due to be repaid.
The loan from the three Chinese banks has allowed RCom to avert a potential default. The terms of the loan are considered highly favourable, with one banking source saying: “At a time in which liquidity is tight in India this is an extremely good deal for Reliance, and not the sort of deal they could have found elsewhere.”
It has been suggested that RCom was able to negotiate such favourable terms due to existing relationships with certain Chinese vendors commissioned to provide equipment for the operator’s 3G network.