RCom to repay $1.8-bn FCCB via Chinese loan

Reliance Communications (RCom), the flagship company of Anil Ambani-led Reliance Group has arranged loan for refinancing its $1.18-billion Foreign Currency Convertible Bonds (FCCBs) due on March 1, 2012 via Chinese lenders. The country’s second largest mobile company, grappling with huge debt-redemption pressure has tied-up with the Chinese financiers to lower its refinancing costs.

The funds would be arranged by China Development Bank, Industrial and Commercial Bank of China, Exim Bank and others at a rate of five per cent to repay the last lot of outstanding foreign currency convertible bonds of the firm, the largest refinancing deals in the country till now. The Chinese loan would allow easy access to funds in a scenario of dollar liquidity crunch. The tenor of the loan is seven years.

“A shift in the strategy of Indian corporates can be seen with respect to repayment of their overseas debt obligations. More and more companies are preferring to raise funds from China as there is excess liquidity there, consequently, raising money becomes easier, “ said Jagannathan Thunuguntla, head equity, SMC Capital. Earlier, they would look to raise money from Europe and the US, he added. Uncertainty in the global markets has led to risk aversion among investors and hence, shortage of dollars.

Most of the Indian firms had tapped the overseas funds via FCCBs in 2007. The instrument allows lenders to choose between conversion of bonds into equities incase the share price goes up or get the bonds redeemed on maturity date. Reliance Communications had raised money through FCCBs in 2007 at a conversion price of 30 per cent premium over the share price prevailing that time.

However, after collapse of Lehman Brother which was followed by the global crisis of 2008-2009, its share price fell sharply from Rs 508 per share. Consequently, the firm had to bear the redemption pressure as the first option of conversion into equity was knocked off.

Some experts also said that if Reliance Communications finds a buyer for its tower business the refinancing pressure on the firm can come off substantially. It raised about $6 billion for expansion and payment for bandwidth and licences for third generation services. RCom’s stock went up by as much as 5.6 per cent in intra-day trade, and closed higher by 2.7 per cent at Rs 88.8, as per dat available on the Bombay Stock Exchange.