Premier Wen Jiabao on his second visit to India last December laid the ground for financial camaraderie between India and China. Besides promising to bring elite Chinese banks to India, and source financial talent from top Indian universities, China also agreed to lend to Indian companies. A win-win situation, Chinese companies get a leg into India’s growth story, are able to finance Chinese imports for Indian companies and Indian companies get loans at a better rate and access to China’s large pool of latent financial assets.
Sanctioned by Premiere Wen himself, taking their largest loan from China Development Bank, billionaire Anil Ambani led Reliance Communications finalized on a Rs 6,000 crore (US$ 1.33 billion) loan facility on Wednesday. The loan facility is fully underwritten by CDB, and will be funded by a syndicate of Chinese Banks/Financial Institutions including CDB. This represents the first and largest ever Syndicated Loan for refinancing Spectrum Fees.
RCOM has also signed an additional Agreement for Rs 2700 crore (US$ 600 million) with CDB, for financing imports / domestic expenditure of telecom equipment from Chinese vendors (namely, Huawei and ZTE). The aggregate financing of Rs. 8,700 crore (US$ 1.93 billion), for which Reserve Bank of India approval has already been sought has a maturity period of 10 years, contributing to significant extension of RCOM’s debt maturity profile, apart from substantial savings in interest costs.
Late last October, Reliance Power, also owned by Anil Ambani signed an initial pact with the Chinese lenders to secure US$12 billion to fund the purchase of US$10 billion of equipment and related services from Shanghai Electric for the Indian company’s various power projects. The coal-fired power plant at Sasan is expected to cost US$4 billion.
The only cautious note for Indian companies should be sounded on the amount of loans taken from Chinese banks. Available at low interest rates, China is keen to lend to developing nations for them to pay Chinese companies for massive infrastructure projects. However analysts warn that increased borrowing from hungry to expand Indian firms could net them in huge liabilities with Chinese banks.