By now we all know the fate of Anil Ambani’s flagship company Reliance Communications. The bankrupt firm has been dragged to Insolvency court and an attempt will be made to sell off all its assets and repay lenders. However, considering that the resolution professional has received claims in excess of ₹ 57,000 crore and has admitted claims in excess of ₹ 49,000 crore, it’s hard to fathom just how RCom will manage to repay them all, even after selling off all its assets.
What is interesting to note is that Chinese Banks have the biggest exposure to the debt laden telecom company. The table below depicts the biggest lenders to RCom and it can be seen that the Chinese institutions have a combined exposure of ₹ 14,775 crore, which is roughly 30% of total claims admitted. By now it is reasonable to assume that all creditors including SBI, LIC, Bank of Baroda, Axis Bank and others have reconciled with the fact that they would be taking a big haircut on their loans to RCom. The Chinese however, are not putting too much faith in the resolution process and have a different strategy in mind.
The Chinese lenders to RCom including China Development Bank, EXIM Bank of China and Industrial & Commercial Bank of China are in the midst of negotiations with foreign funds to sell their loan exposures in the insolvent telecom firm according to sources. They have reportedly been in talks with US based distress asset investors for over six months, but a deal has not yet been struck. During initial talks, the Chinese banks were willing to take a haircut of 40% to 50% of the amount loaned, however, after RCom was admitted to insolvency court more than a month ago, now the investors are willing to offer only 15 – 20 cents to the dollar, which implies a haircut of 80% to 85%.
The Chinese firms had lent the money to RCom as part of an arrangement where the telecom company would use the funds to purchase equipment from Chinese manufacturers. It has not been smooth sailing and both the parties have had a rocky relationship over the years. In 2017, when domestic banks were working on a loan restructuring proposal for RCom, the Chinese lenders refused to participate and China Development Bank decided to file an insolvency petition to NCLT instead. The case was eventually withdrawn after domestic lenders intervened.
The skepticism by the Chinese lenders is well founded as they have burned their hands before with another Indian telecom company. In the case of Aircel Ltd, which was also dragged to insolvency court, lenders had to take a 99% haircut on their loan exposures of ₹ 19,800 crore, and China Development Bank, which had an exposure of 2,700 crore ₹ to Aircel, had to mostly write off those amounts.
It is because of this reason that the Chinese lenders could well be willing to take an 80% to 85% haircut and sell off their loans in the beleaguered RCom before the insolvency process is completed.