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R-Adag, Chinese banks in $3 bn finance deals

R-Adag, Chinese banks in $3 bn finance deals

New Delhi/Mumbai: The Reliance-Anil Dhirubhai Ambani Group (R-Adag) will sew up around $3 billion (Rs 13,500 crore) in loans as a part of deals that will be signed during the visit of Chinese Premier Wen Jiabao.

A portion of the money will be used to fund equipment purchases from Chinese companies by R-Adag’s telecom and power units.

India’s second largest telecom service provider by subscribers, Reliance Communications Ltd (RCom), will sign a memorandum of understanding (MoU) with the China Development Bank, for an all-cash, 10-year loan amounting to $1.93 billion.

“Around $1.33 billion will be used for refinancing of short-term debt, while the remaining approximately $600 million will be used to procure equipment needed for 3G (third-generation mobile) services from Chinese manufacturers Huawei and ZTE," an RCom executive said, requesting anonymity. “We will see a saving of around 500 crore in interest cost per year due to the refinancing."

The MoU will be signed on the sidelines of the India-China business summit on Wednesday.

An RCom spokesperson confirmed the development.

A Mumbai-based analyst said the company’s net debt will largely stay the same.

“This refinancing does not solve their problems," he said. “They still have the highest net debt to ebitda (earnings before interest, taxes, depreciation and amortization) among the telcos. They need to raise capital."

RCom has a net debt of approximately 30,000 crore, and the funding will ease short-term pressure, said another Mumbai-based analyst working with an international brokerage firm. Both analysts declined to be named.

Older equipment vendors, including Ericsson and Nokia Siemens, have complained about the difficulty in competing with Chinese manufacturers, who are able to provide easier payment terms and cheap loans from banks there for the gear.

Reliance Power Ltd (RPower) is getting a 5,000 crore ($1.1 billion), 13-year loan from a consortium of three Chinese banks and Standard Chartered Bank to buy equipment from Shanghai Electric Power Co. Ltd (SEPC) for its 4,000MW coal-fired Sasan power plant in Madhya Pradesh, a company release said.

The three Chinese banks are Bank of China, the China Development Bank and the Export Import Bank of China.

RPower had signed an MoU in October with four banks, the three above and the Industrial and Commercial Bank of China, for $12 billion of financing mainly to buy equipment for projects.

The funding, which arises from the supplier arrangement with Shanghai Electric Group Co. Ltd, will provide RPower with money at lower interest, said Vishal Biraia, an analyst at Batlivala and Karani Securities India Pvt. Ltd. Equipment accounts for around 70% of the overall project cost, while the rest is for buying land and building the plant.

In October, RPower had said in a statement that it was buying $10 billion of boiler, turbine, generator (BTG) packages from Shanghai Electric Group for coal-based power plants that can generate 30,000 MW.

Indian power utilities have ordered equipment to generate 26,000MW annually from Chinese firms largely because of the inability of local manufacturers to meet demand. Chinese equipment is also relatively cheaper.

The loans from Chinese banks will give the power producer both an equipment and financing discount, said the head of research on the power sector at a foreign bank. He declined to be identified as he is not authorized to speak to the media.

State-owned Bharat Heavy Electricals Ltd and Larsen and Toubro Ltd (L&T) have been lobbying with the government to limit Chinese competition. L&T chairman and managing director A.M. Naik has been seeking a 25% anti-dumping duty on Chinese products, Mint had reported earlier.

Sasan, which is expected to start producing power in fiscal 2013, has an estimated project cost of around 20,000 crore, financed through debt and equity in the ratio of 70:30.

Financial closure for the Sasan project was completed in April 2009, with the company raising 14,500 crore from Indian banks.

On 6 November, RPower signed a pact with General Electric Co. for $750 million to supply equipment for its Samalkot power plant, a gas-based plant located in Andhra Pradesh, during a visit by US President Barack Obama to India.

(Reliance Power has sued HT Media Ltd, publisher of Mint, in the Bombay high court over a 12 May front-page story in Mint, that it disputed. HT Media is contesting the case.)


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