Anil Ambani-led telecom firm Reliance Communications has managed to refinance its outstanding foreign currency convertible bonds (FCCB) worth $1.18 billion (Rs 6,125 crore) in one of the largest such deals in India. The debt-laden telco was facing a huge redemption task as FCCB worth $1 billion (approx.) would be maturing in March 2012.

The maturing FCCBs reportedly carried a conversion price of Rs 654, over seven times the current market price. RCOM scrip rose 3.24 per cent in early morning trade on the BSE and was quoting at Rs 89.25 in a strong Mumbai market on Tuesday.

Given such a high difference between current market price and conversion price, it was but obvious that the FCCB holders would ask for bond redemption and that meant RCOM would have to raise funds to repay the overseas investors.

The refinance deal, which has been in the works for the past few months, involves three Chinese lenders, Industrial and Commercial Bank of China, China Development Bank and Export Import Bank of China, among others.

The lenders have decided on a 7-year term loan carrying 5 per cent interest cost.

The refinancing comes as a crucial lifeline for RCOM that has been struggling financially with high pile of debt and deteriorating bottomline. While consolidated revenues have been nearly flat over the past two years, net profit has shrunk by over two-thirds for FY11, compared to the average over the three previous years, when it churned out billion-dollar-plus in net profit annually.

Anil Ambani’s Tryst With Chinese Banks & Japanese Partners

However, this is not the first time Reliance ADAG has courted Chinese lenders. In March last year, RCOM announced that it had signed final documentation with China Development Bank (CDB) for Rs 6,000 crore ($1.33 billion at that time) loan facility. This represented the first and largest ever syndicated loan for refinancing spectrum fees. The loan facility was fully underwritten by CDB and was to be funded by a syndicate of Chinese banks including CDB.

This looked like a quid-pro-quo deal with China. RCOM had also signed an additional agreement for Rs 2,700 crore ($600 million then) with CDB for financing imports/domestic expenditure of telecom equipment from Chinese vendors (namely, Huawei and ZTE). The aggregate financing of Rs 8,700 crore ($1.93 billion) has a maturity period of 10 years.

Earlier, Reliance ADAG had also struck a MoU for finance facilities for as much as $12 billion over a period of time for various power projects. Chinese banks are already funding Reliance Power’s Sasan project with over $1 billion in debt.

Besides Chinese lenders, ADAG had also joined hands with Japanese strategic partners. In the financial services space, Reliance Capital struck a deal with Japan’s largest life insurance firm Nippon Life Insurance Company to expand the scope of their existing business partnership in the Indian insurance space to other financial services, such as asset management. This came close on the heels of Nippon striking a deal to acquire 26 per cent in Reliance Life Insurance, a part of Anil Ambani Group’s Reliance Capital, for Rs 3,062 crore ($680 million), valuing Reliance Life Insurance at approximately Rs 11,500 crore ($2.6 billion).

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