India’s Reliance Look Beyond Western Lenders, Towards Chinese Banks For Loan

By: EW News Desk Team   Date: 18 January 2012

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EW News Desk Team

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18 January 2012

In a move that highlights the growing shift in international financial lending, Reliance Communications Ltd, owned by Indian billionaire Anil Ambani, will borrow $1.2 billion from three Chinese state-run banks this week, in order to refinance its outstanding foreign-currency convertible bonds that are due to be paid by the beginning of March.

According to a report by the Financial Times, Indian companies “are being forced to look beyond western lenders for new sources of finance,” due to high Indian interest rates and a sharp decline in the value of the rupee. Borrowing money from Chinese banks, which provide extended maturity periods for their loans and lower interest rates, is thus seen as a “more attractive” option.

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“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,” said a senior Asian banker to FT.

The three Reliance lenders are the China Development Bank Corp, the Export-Import Bank of China and the Industrial & Commercial Bank of China. The trio are likely to help Reliance Communications cap its interest expense at just 5 percent, even after dollar funding costs for Indian companies rose 171 basis points in 2011 to 6.83 percent.

“Without the Chinese, they would have been in big trouble,” said Juergen Maier, a Vienna-based fund manager at Raiffeisen Capital Management, to Bloomberg.

“The Chinese are the last lenders left that will lend them large amounts of money at reasonable interest rates.”

Other Indian companies, including Suzlon Energy and Tata Motors, are also said to be seeking similar forms of loans this year to repay their debt as well.

“At this difficult time many larger Indian businesses are looking to China to see if they too can find access to preferential financing rates,” said Kamal Rungta, managing director of EJ McKay, an India-China focused corporate advisory firm.

“This deal sends a message to other Indian businesses that if you buy Chinese equipment in a big way then you will may get this generous financing too,” added Brahma Chellaney, an expert on India-China relations at the New Delhi-based Centre for Policy Research, who noted Anil Ambani’s previous willingness to place orders with Chinese state-backed manufacturing firms as a possible reason for the lower-than-usual interest rates offered.

Erica Downs, a fellow at the John L. Thornton China Centre at the Brookings Institution also pointed out that Chinese state-run banks are also more likely to provide attractive loan options due to the government’s attempt at international diplomacy.

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"Chinese banks try and balance two goals to expand their loan portfolio and if that can happen while supporting Chinese diplomacy, then it's even better," said Downs.

"CDB, as a state bank, think of themselves as a sort of development finance corporation, and borrowers see them as a lender of last resort."


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