China Development Bank takes RCom to NCLT: Will Anil Ambani-led telco go the Essar Steel way?
Anil Ambani's Reliance Communications (RCom) had warnings from many quarters when it took loans from Chinese banks. All was well for the seven years since 2010 when Reliance Power (R-Power) and Shanghai Electric Power Co signed in-principle agreements with Chinese banks for up to $12 billion of financing. But defaulting repayments of Chinese loans threw a spanner in RCom's strategic debt restructuring plan. Under the plan, RCom was supposed to sell assets such as wireless spectrum, towers, fiber-optic networks and real estate for a valuation above $4 billion, in addition to a $1 billion debt-to-equity swap in favour of creditors. The Chinese are the first among lenders to take the telecom operator to bankruptcy court.
China Development Bank (CDB) filed an insolvency petition on 24 November against RCom to recover its loan of $1.78 billion (Rs 11,460 crore), according to media reports. It accounts for 37.11 per cent of RCom's total secured debt. Indian bankers, who also lent to RCom, fear the petition by the Chinese banker may halt the out of court settlement that they are forging along with the company. RCom, which earlier decided to shut down its wireless operations (mainly 2G), has a December 2017 deadline to complete loan restructuring and sales. The petition against RCom came to the bankruptcy court when the court appointed resolution professionals pursue insolvency proceedings against 12 non-performing assets (NPA) -- which include Essar Steel, Bhushan Steel and Alok Industries among others -- in the country.
RCom said in a statement that the company has not been served any notice of the application filed by China Development Bank with NCLT. "The company is engaged through the JLF (Joint Lenders' Forum) with all its lenders for a successful resolution of the SDR process. CDB has also been actively participating in the JLF. The company is therefore, surprised by the untimely and premature action of the CDB of filing an application at NCLT. The company continues to remain engaged with all lenders including CDB and is confident and committed to a full resolution with the support of all the lenders," said the spokesperson.
Was the Chinese loan a trap for Anil Ambani? When the younger Ambani's group started engaging with Chinese banks in 2010, Russian and Brazilian companies were struggling in executing the projects funded via Renminbi loans. Russian giants Rosneft and Transeft took a combined loan of $25 billion in 2009 from CDB for supplying oil to China. But China renegotiated the deal after the pipeline work was completed and the Russians had no choice but to reduce the price of the oil being supplied to China. Around the same time, Brazilian iron ore giant Vale took a $1.23 billion Chinese loan to construct 12 'Chinamax' shipping vessels for supplying iron ore to the Asian. But after the delivery was completed, the Chinese blocked the Brazilians from supplying iron ore to China.
In 2010, R-Power agreed to buy $10 billion (around Rs 44,500 crore then) worth of boiler, turbine, generator (BTG) packages from Shanghai Electric for coal-based power plants. The company claimed at that time that it was the world's largest such order. The equipment ordered was sufficient to generate 30,000 mega watt, an R-Power statement said. And the supplies was supposed to be completed in three years. R-Power and Shanghai Electric signed in-principle agreements with Chinese banks for up to $12 billion of financing. But it is not clear how much of the approved loan has been drawn so far, especially when the power sector is reeling under surplus scenario in India. Chinese banks also funded R-Power's Sasan project with over $1 billion in debt, earlier reports said.
In another deal in 2011, RCom raised Rs 6,000 crore ($1.33 billion at that time) syndicated loan from CDB for refinancing spectrum fees. The telecom player had also signed an additional agreement for raising Rs 2,700 crore ($600 million then) from CDB for financing imports/domestic expenditure of telecom equipment from Chinese vendors Huawei and ZTE. In March 2012, the debt-laden telco again took the Beijing's money when it was facing a huge redemption pressure as its FCCB worth around $1.18 billion was maturing.
Finally, the Chinese called the shots in RCom. It will interesting to see how the battle will pan out in the bankruptcy court. The share price of RCom is at around Rs 13 now, compared to its peak of Rs 800 in January 2008. The market value stands at Rs 3,500 crore.
China Development Bank (CDB) filed an insolvency petition on 24 November against RCom to recover its loan of $1.78 billion (Rs 11,460 crore), according to media reports. It accounts for 37.11 per cent of RCom's total secured debt. Indian bankers, who also lent to RCom, fear the petition by the Chinese banker may halt the out of court settlement that they are forging along with the company. RCom, which earlier decided to shut down its wireless operations (mainly 2G), has a December 2017 deadline to complete loan restructuring and sales. The petition against RCom came to the bankruptcy court when the court appointed resolution professionals pursue insolvency proceedings against 12 non-performing assets (NPA) -- which include Essar Steel, Bhushan Steel and Alok Industries among others -- in the country.
Was the Chinese loan a trap for Anil Ambani? When the younger Ambani's group started engaging with Chinese banks in 2010, Russian and Brazilian companies were struggling in executing the projects funded via Renminbi loans. Russian giants Rosneft and Transeft took a combined loan of $25 billion in 2009 from CDB for supplying oil to China. But China renegotiated the deal after the pipeline work was completed and the Russians had no choice but to reduce the price of the oil being supplied to China. Around the same time, Brazilian iron ore giant Vale took a $1.23 billion Chinese loan to construct 12 'Chinamax' shipping vessels for supplying iron ore to the Asian. But after the delivery was completed, the Chinese blocked the Brazilians from supplying iron ore to China.
In 2010, R-Power agreed to buy $10 billion (around Rs 44,500 crore then) worth of boiler, turbine, generator (BTG) packages from Shanghai Electric for coal-based power plants. The company claimed at that time that it was the world's largest such order. The equipment ordered was sufficient to generate 30,000 mega watt, an R-Power statement said. And the supplies was supposed to be completed in three years. R-Power and Shanghai Electric signed in-principle agreements with Chinese banks for up to $12 billion of financing. But it is not clear how much of the approved loan has been drawn so far, especially when the power sector is reeling under surplus scenario in India. Chinese banks also funded R-Power's Sasan project with over $1 billion in debt, earlier reports said.
In another deal in 2011, RCom raised Rs 6,000 crore ($1.33 billion at that time) syndicated loan from CDB for refinancing spectrum fees. The telecom player had also signed an additional agreement for raising Rs 2,700 crore ($600 million then) from CDB for financing imports/domestic expenditure of telecom equipment from Chinese vendors Huawei and ZTE. In March 2012, the debt-laden telco again took the Beijing's money when it was facing a huge redemption pressure as its FCCB worth around $1.18 billion was maturing.
Finally, the Chinese called the shots in RCom. It will interesting to see how the battle will pan out in the bankruptcy court. The share price of RCom is at around Rs 13 now, compared to its peak of Rs 800 in January 2008. The market value stands at Rs 3,500 crore.
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