A Chinese Frenemy Offers India's Banks a Risky Reliance
(Bloomberg Gadfly) -- By making a bid to push Reliance Communications Ltd. into bankruptcy, China Development Bank has done what Indian lenders were trying their best to avoid. But now that it's pulled the trigger, State Bank of India and other domestic creditors won't be terribly unhappy.
The Indian wireless company owes one fifth of its $7 billion debt to CDB, which organized a syndicated loan for billionaire Anil Ambani's firm in 2011. While operational creditors such as Ericsson India Private Ltd. and Tech Mahindra Ltd. have previously approached India's National Company Law Tribunal to start insolvency proceedings against RCom, this new petition by a hefty financial creditor comes as the biggest challenge for Ambani's desire to hold on to at least a minority stake.
The fate of that plan hangs on a privately negotiated offer that involves a pledge to sell wireless spectrum, towers, fiber-optic networks and related assets for $2.6 billion, as well as real estate for $1.55 billion, and move $930 million of obligations to a shrunk, new RCom.
To that $5 billion resolution, add a proposed $1 billion debt-to-equity swap in favor of creditors, plus whatever liquid assets the company might still have (RCom had roughly $215 million of cash and equivalents in March), and the insolvency looks more or less resolved.
On paper, Ambani's is a zero loan write-off plan. But then, RCom's previous attempts to deleverage by merging its cellular business with another operator and selling a stake in the towers have come to nothing. It has already shuttered its 2G and 3G consumer businesses, and skipped a coupon on a $300 million bond. At 36 cents on the dollar, the price of the defaulted security suggests skepticism about the recovery rate.
So by bringing the sword of bankruptcy closer to RCom's neck, CDB gets to negotiate a sweeter deal with Ambani, preferably one in which there's no loan-to-equity conversion. That's something Indian banks won't mind. After all, which creditor would buy a stock at 24.71 rupees (about 38 cents, the price agreed on in June) when the shares currently trade at 13.35 rupees?
RCom says it's surprised by CDB's "untimely and premature action." The real shock, though, is that RCom is surprised: REDD Intelligence said on Nov. 6. that CDB was scouting for advisory firms to manage the firm in bankruptcy.
All this is a just a game. By themselves, India's capital-starved creditors can't bring enough pressure to bear on RCom. The company knows how reluctant they are to make 50 percent provisions against secured soured loans -- and 100 percent against unsecured duds, as required by the regulator -- should they refuse to accept Ambani's restructuring plan by a December deadline.
CDB, however, is a different beast. It has so much more to lose in Venezuela -- and perhaps also in Pakistan, as my colleagues Nisha Gopalan and Shuli Ren have argued -- that its RCom exposure is chump change in comparison.
That makes the Chinese bank a credible threat, and a pal of Indian lenders. But only up to a point. If CDB pushes too hard, and RCom does slip into bankruptcy, then Indian banks' profits for this quarter will be toast.
The Chinese friend could turn into a frenemy.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.
-
Navigating Friction And Energy Realities: An Analysis Of Marco Rubio's October Visit To India
Occurring at a critical juncture marked by stalled trade negotiations and escalating geopolitical pressures over global energy supplies, the visit offers a profound window into modern US-India relations.
-
India Exports Capital. Why Not Export Trusteeship?
The big question, then, is whether India can build an institution that global borrowers, investors, banks, and lawyers can trust, even without an Indian connection.
-
France's Economy & Politics Are In Crisis | The Reason Why
Let's look at how the French economy and politics evolved under Nicolas Sarkozy, Franois Hollande and Emmanuel Macron.
-
You May Inherit The Business. You Must Earn Its Credibility.
Succession tests the founder's ability to share authority as much as it tests the next generation's readiness to assume it.
-
Signing Deals Is One Thing; Making Them Work Is Another | The Week In Whys
Sometimes, things don't turn out as planned. Indian companies have lost some bids to rivals, some projects won't produce until 2030.
-
FOMC Wall, PERM Suspension, Hospital Stocks | Talking Points This Week
A PERM suspension would directly affect green-card sponsorship rather than H-1B visas, so the near-term earnings impact could remain relatively limited. The key question is whether this marks a new phase in US scrutiny of Indian IT.
-
Everything, Everywhere, All At Once: Dalal Street's Week To Forget | Joining The Dots
Visa curbs, a Starlink spat and cancer drug caps: what connects this week's shocks for Indian markets
-
India Is Going Abroad For Critical Minerals. But It May Take Years To Pay Off | The Reason Why
Although India's steps are in the right direction, they remain modest compared with India's growing dependence.
-
When Everyone Has AI, What Gives You An Edge?
India's young workforce is entering an uncertain world of work where powerful AI tools are becoming widely accessible. The advantage will belong to those who combine deep expertise with digital fluency, and the distinctly human capabilities that technology cannot manufacture.
-
Wrong Labels, High Pesticide Residues Holding Back Agri Exports | The Reason Why
India needs stronger domestic food-safety and labelling standards, with best practices becoming part of everyday business for farmers, traders and food companies.
