Part of fund will be utilised to refinance RCom’s short-term debt
Reliance Communications has struck a deal with China Development Bank (CDB) for a $1.93-billion (Rs 9,000 crore) syndicated loan, a major part of which will be utilised to refinance the company’s short-term debt, which it had incurred to pay for 3G spectrum.
The loan, which will have a maturity of ten years at an all inclusive rate of interest of around 5 per cent, will help the company save Rs 500-crore annually as interest cost. The memorandum of understanding (MoU) between the two companies will be signed tomorrow in the presence of Chinese Premier Wen Jia Bao during his visit to India.
In what is being termed as one of the largest syndicated refinance deals for payment of 3G spectrum fee, CDB and some other Chinese banks, who have formed a consortium, are giving a loan of $1.33 billion to the company to convert its short-term debt, which it had raised through commercial paper (valid for three months) into a 10 year loan term for paying 3G spectrum fee. The remaining $ 600 million will be used to pay for equipment, which RCom will buy from Chinese manufacturers Huawei Technologies and ZTE.
The two firms have also given a supplier’s credit line of around three years to RCom to finance their equipment purchase.
Reliance had paid Rs 8,585 crore for 3G spectrum in as many as 13 telecom circles, which included all of Mumbai, Delhi, Kolkata and Punjab among others. It has just launched its 3G services this week in four circles across the country, the second player in the private sector after Tata Docomo.
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The move will come as a major relief for the telecom company, which has very high debt of around Rs 33,000 crore. At the annual general meeting of the company in September, Chairman Anil Ambani said he planned to make RCom debt-free in three years. He talked of a number of fund raising plans — 26 per cent stake sale, a proposed qualified institutional placement, possible initial public offer of Reliance Infratel in combination with monetising its 55,000 telecom tower assets.
In the last few months, RCom had tried its hand at all methods of equity raising. It signed an agreement with GTL Infra to transfer its 55,000 telecom towers in exchange for cash and stock in a new joint venture.
But the deal fell apart and the company is again talking to private equity players. Its talks with UAE-based Etisalat to sell stake met the same fate.