(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
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.
-- 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
(Editing by Hugo Dixon and David Evans)