China banks lend $1.18 bln to Anil Ambani's RComm

NEW DELHI (Reuters) - Chinese state banks stepped in to lend debt-laden mobile phone carrier Reliance Communications (RLCM.NS) $1.18 billion to repay overseas convertible bonds due for redemption on March 1, as the carrier struggles to sell its telecoms tower business.

India’s No.2 mobile phone operator by subscribers, controlled by billionaire Anil Ambani, has been burdened by $6.5 billion in debt and battered by ferocious competition that has seen it post nine straight quarters of declining profit growth.

The bond repayment had weighed on the company’s share price as talks about the sale of the telecoms tower dragged on and global funding conditions worsened amid the European debt crisis.

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“The company has been trying several things … but as they were running out of options they had to go for refinancing,” said Jagannadham Thunuguntla, strategist at SMC Global Securities in New Delhi.

Reliance Communications said Industrial and Commercial Bank of China (601398.SS), China Development Bank Corp CHDB.UL, Export Import Bank of China and other banks provided the refinancing of the foreign currency convertible bonds (FCCBs).

Anil Ambani, the younger brother of Mukesh Ambani, Asia’s richest man, has tapped China’s cash-rich lenders before.

Last year, China Development Bank arranged a $3 billion syndicated loan for the mobile firm and Reliance Power (RPOL.NS), also part of Anil Ambani’s Reliance Group.

Anil Ambani, who assumed control of businesses ranging from power to financial services and telecoms after a bitter 2005 split with his brother, has seen his net worth erode in the last few years as shares in his companies skidded, partly on worries over their debt.

A unit of his company and three executives of Anil Ambani’s group are among more than a dozen people charged in a police probe into a multi-billion-dollar scandal that involved the alleged sale of lucrative telecoms licenses at below-market prices. Anil Ambani himself was questioned last year and also appeared before a parliamentary panel investigating the scandal.

All accused have denied any wrongdoing.

Reliance Communications has long been trying to unload its telecoms tower business. A deal to combine the business with India’s GTL Infrastructure (GTLI.NS) collapsed in 2010.

Sources have said Reliance Communications is currently in talks with U.S. buyout giants Carlyle Group CYL.UL and Blackstone Group (BX.N) on a deal for the towers business that could be worth more than $3 billion, but they have said a deal was not close to completion.

Reliance Communications said last May that it had received several offers for the tower arm. In September, Anil Ambani told shareholders the firm was in an “advanced stage” of negotiations with a number of consortiums and said he was confident the firm would be able to “move forward expeditiously” on a deal.

Anil Ambani is looking to secure a leasing agreement from his brother’s Reliance Industries (RELI.NS) for the towers before pressing forward with a sale, the sources have said.

CHINA TO THE RESCUE

Barclays Capital said the loan for Reliance Communication removes a source of “nervousness” around the stock and resolves short-term liquidity problems for the company.

The terms of the deal and the banks involved “are all additional positives,” Barclays Capital analysts wrote. The loan has an “attractive” interest cost of about 5 percent and seven-year maturity, Reliance Communications said.

Reuters reported last week that Reliance Communications was in talks with China Development Bank for a syndicated loan to redeem the bond.

“The upcoming FCCB maturity was one of the major overhangs on the company for the past few months and with today’s announcement they have at least managed to address some concerns,” SMC Global’s Thunuguntla said.

The bonds were issued in February 2007 when Indian markets were booming, with a conversion price of 654 rupees a share.

Cut-throat competition among India’s mobile phone operators has since hit earnings and shares have plunged. A drop in the rupee has raised the cost for Indian firms of servicing foreign debt.

Reliance Communications shares rose as much as 5.7 percent after the announcement on Tuesday. Still, the stock was trading at around 90 rupees on Tuesday, a fraction of the conversion price.

(Reporting by Devidutta Tripathy in NEW DELHI; Editing by Tony Munroe)