BREAKINGVIEWS-India's Reliance on Chinese cash comes with risks

Tue Jan 17, 2012 5:01pm IST

Stocks

   

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Jeff Glekin

MUMBAI Jan 17 (Reuters Breakingviews) - India Inc is feeling the pinch as dollar liquidity dries up. With European banks retrenching, Asian competitors are picking up the slack. It's nice to have options but Chinese funding is still seen as a last resort. Politically hard to swallow, it often comes with strings attached.

Anil Ambani's Reliance Communications, India's second-largest mobile phone carrier, has just raised funds from several Chinese banks to refinance $1.18 billion of outstanding foreign currency convertible bonds. At present, it is not clear if any strings are attached to this deal. However, Reliance also borrowed from China last March when China Development Bank arranged loans worth $1.93 billion. Those funds were used to finance the purchase of radio spectrum as well as equipment from China's Huawei Technologies.

Though businesses may be wary of similar deals tied to purchase of Chinese equipment, they may have little choice. Surging interest rates at home prompted many Indian companies to raise $30 billion offshore last year. Many are exposed to currency losses after the rupee lost nearly 18 percent of its value. What's more, risk aversion among European banks has pushed up the cost and availability of offshore debt. Reliance is paying only 5 percent for its loan.

The squeeze is most acute for firms such as Tata Steel and JSW Steel which will be looking to refinance existing debt. Some $7.8 billion of convertibles need to be redeemed or converted by the end of this year, according India Infoline. Given the plunge in the stock market over the past year, the bulk will have to be redeemed.

India Inc as well as policymakers won't like having to rely on its more powerful neighbour across the Himalayas for funding, particularly since Chinese banks have an express mandate to advance the country's national interest. On the other hand, any source of funding is better than running out of cash. What's more, if Chinese banks subsidise loans that no one else will touch, they could be ones that end up feeling the pain.

CONTEXT NEWS

-- Reliance Communications, India's second-largest mobile phone carrier, has raised funding from several Chinese banks to refinance $1.18 billion of outstanding foreign currency convertible bonds. The firm, controlled by Anil Ambani, said on Jan. 17 that Industrial and Commercial Bank of China, China Development Bank Corporation, Export Import Bank of China and other banks would provide seven-year loans at an interest cost of about 5 percent.

-- Reliance Communications borrowed from China last March when China Development Bank arranged loans worth $1.93 billion. Those funds were used to finance the purchase of radio spectrum as well as equipment from China's Huawei Technologies.

-- Reuters: Reliance Comm ties up loans to refinance $1.18 bln fx

(Editing by Hugo Dixon and David Evans)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Consumer Confidence Index

REUTERS SHOWCASE

Food Scandal

Food Scandal

Starbucks, Burger King dragged in as China food scandal spreads.  Full Article 

Bigger iPhones

Bigger iPhones

Apple asks suppliers to produce up to 80 mln large-screen iPhones - WSJ.  Full Article 

Gaza Conflict

Gaza Conflict

Israel keeps up Gaza assaults, Kerry presses for truce.  Full Article 

Ukraine Crash

Ukraine Crash

Bodies, black boxes handed over from Ukraine crash site.  Full Article 

Bali Trade Deal

Bali Trade Deal

India keeps world guessing in countdown to landmark trade pact deadline.  Full Article 

Bangalore Sex Abuse

Bangalore Sex Abuse

Modi's BJP puts political twist on local sex abuse case   Full Article 

Yahoo to buy Flurry

Yahoo to buy Flurry

Yahoo to buy analytics startup Flurry to bolster mobile ad business.  Full Article 

Wholesale Biz

Wholesale Biz

Wal-Mart adds $102.9 million in Indian wholesale business in June.  Full Article 

Monsoon Effect

Monsoon Effect

Thailand to reclaim top rice exporter spot after poor Indian rains.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage