China Development Bank Pushes Reliance Communications Closer to the Edge

By Manju Dalal and Kenan Machado Features Dow Jones Newswires

The debt woes of one of India's leading wireless carriers Reliance Communications have deepened this week thanks to an unlikely new source of pressure -- a leading state-owned Chinese bank.

Continue Reading Below

It emerged late Monday that China Development Bank, a policy bank which often helps fund Chinese companies' investments overseas, had late last week filed a petition in a Mumbai court for Reliance, also known as RCom, to be declared insolvent.

The move is highly unusual. Only once before in recent times has a foreign lender requested an Indian company to be declared insolvent. But China Development Bank is one of RCom's biggest lenders, having invested some $2 billion in the company's debt since 2010.

The Indian company said in a filing to local exchanges late Monday that it was "surprised" by the bank's "untimely and premature action". CDB didn't respond to faxed requests for comment. Shares in RCom slumped 3.4% in trading in Mumbai on Tuesday. The stock has fallen 63% this year, wiping about $820 million off its market value, according to FactSet data.

Controlled by 58-year old billionaire Anil Ambani, RCom has in recent years struggled in India's crowded wireless market, where phone charges are among the world's lowest. The company has built up a 457.5 billion Indian rupees ($7.08 billion) debt pile over the years to fund its growth.

Its troubles have worsened over the past year after rival Reliance Jio Infocomm Ltd.-- run by Mr. Ambani's elder brother and India's richest man, Mukesh Ambani -- entered the wireless industry and began offering customers free call and data plans, causing RCom to lose further market share. Earlier this month RCom disclosed it had missed a $9.75 million interest payment on $300 million worth of U.S. dollar bonds it sold in mid-2015.

Continue Reading Below

CDB's investment in RCom began in 2010, when it led a syndicate of Chinese lenders that lent the company $1.93 billion for 10 years, in a deal that coincided with a visit by then-Chinese Premier Wen Jiabao to India. Around a third of those funds were used by RCom to fund its purchases of goods and services from Chinese telecom giants Huawei Technologies Co. Ltd., and ZTE Corp.

CDB, along with Export-Import Bank of China and Industrial & Commercial Bank of China, later led a $1.18 billion seven-year loan for RCom in January 2012, according to Dealogic data. Since 2010, CDB has participated in loans totaling around $2 billion to three other Indian issuers -- Jhajjar Power and two companies that are part of the Adani Group -- Adani Power and Adani Power Maharashtra.

Last month, RCom proposed a debt restructuring plan with "zero write-offs" to its lenders including CDB, saying it would convert about $1.08 billion of its debt into equity and sell some assets including cell towers and real estate.

As yet, CDB and other lenders have not accepted RCom's proposal.

"CDB is not clear about RCom's restructuring plan and how other lenders will recover their dues", said a person familiar with the situation. CDB has also stayed away from joining other lenders in an proposed auction of RCom's assets.

The Chinese bank's resort to the courts could now encourage other lenders to join it in pressing for RCom to be declared insolvent, said a foreign-based lawyer specializing in dispute resolutions for an international law firm. It is quite rare for Indian lenders to push companies into bankruptcy, and some may have looked to a foreign lender to lead the way, he said.

India's government introduced a new bankruptcy law last year designed to simplify and put a time limit on the previously labyrinthine process, part of its broader effort to deal with India's longstanding problem with bad corporate debt.

"It gives a lot more teeth to people in terms of time," said the lawyer, who didn't wish to be named due to previous work with one of the parties involved. "You wouldn't begrudge a foreign debtor for taking to this process."

If the bankruptcy court in Mumbai admits CDB's petition, RCom could be forced to undergo a court-supervised restructuring within up to 270 days, or face insolvency.

--Grace Zhu contributed to this article.

Write to Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

November 28, 2017 10:08 ET (15:08 GMT)