|Thursday, 19 January 2012 01:05|
Anil Ambani finds a Chinese saviour for his FCCB problem. Others are looking for similar help
Although China refused to play the white night even when European leaders implored it to do so, it’s interesting to see how China is still quietly putting its money where it sees potential returns. Even though the European Commission’s website puts Chinese investments at only ¤0.9bn (around $1.14bn) in 2010, the FT says Chinese direct investment in Europe in the first half of 2011 stood at almost $3.3bn, and could go up to $8bn by the end of the year. Although the small numbers suggest China is leery of investing in turmoil-ridden Europe, its investments in India are growing by leaps and bounds—and given how India Inc desperately needs the money, few are protesting.
Anil Ambani’s ability to get $1.2bn of Chinese funds to take care of his need to refinance FCCBs is a good example of this. With the bonds likely to cost RCom 5%, they may well be the best alternative for India Inc that needs to convert around $24bn of FCCBs and ECBs by the end of March 2013. China’s inroads into power and telecom sectors, aided by its generous financial suppliers credit, is already quite significant—remember Ambani’s $10bn power equipment purchase funded by Chinese banks? Around 30% of all power equipment in the 11th and 12th Plan periods will be from China. Given the precarious state of the power sector, generous Chinese financing suggests the state-owned Chinese banks may even eventually be looking to get a stake in some power companies in case they’re not able to repay loans. In the telecom sector, similarly, 45-50% of all equipment orders go to China. So the next time the government decides to act tough with China, no prizes for guessing who’s going to be advising restraint.