Reliance Communications obtains $750 million from China Development Bank

New Delhi: Anil Ambani controlled Reliance Communications (RCom) has received a loan of $750-million (Rs 3,000 crore) for a 10-year period from China Development Bank to fund its nationwide GSM launch.

The loan would essentially finance the company's GSM equipment order placed with Chinese network major Huawei. The order is spread over a 3-year period and is likely to be finalised soon. The order will have both 2G and 3G components.

In January this year, RCom had awarded a nationwide GSM rollout contract for electronics valued at about $500-$600 million to the Chinese company Huawei. The contract is for 14 circles for which RCom was awarded GSM spectrum.

RCom's equipment order for Huawei is for its first nationwide GSM rollout contract for electronics. More such contracts for various equipment categories are expected to be signed over the next couple of months. RCom plans to invest over Rs6,000 crore in electronic equipment alone for its GSM rollout.

Sources said the company has received all necessary approvals including that of RBI for the said amount, whose tenure is for 10 years and carries a coupon rate of Libor plus 80 bps. NNSources said the loan would enhance RCom's cost structures as the next best option available offers a tenure of 6-7 years or a coupon rate higher by 70-80 basis points.

This is said to be the single-largest loan extended to an Indian company by the China Development Bank.
 
For its GSM rollout RCOM would lease out passive infrastructure from Reliance Infratel, its 95- per cent owned tower firm.
 
RCOM has said the rollout of GSM services would help it target the fast-growing subscriber additions of 7 million GSM subscribers every month and address the telecom requirements of the existing 172 million GSM customers with the launch of nationwide GSM network, in addition to its CDMA network. RCom plans to roll out GSM services in 23,000 towns and 6 lakh villages by the end of the year.

RCom was able to make its GSM foray when defence authorities agreed to vacate 45 MHz quantity of spectrum two years ago after which the company approached the government seeking spectrum in 1800 MHz frequency to start GSM services in the country.
NNRCom now has a presence in GSM and CDMA segment and its business is based on the model followed by Chinese telco, China Unicom, which is also present in both the telecom segments.

In India 80 per cent of subscriber growth comes from the GSM segment.

Although CDMA is considered a spectrum-efficient technology, worldwide GSM technology has been opted as CDMA operators are obliged to pay a hefty royalty to Qualcom the developers of CDMA technology.

The royalty in India is as high as 7 per cent each on equipment as well as handset compared to only two per cent in China and nil royalty in the US, company sources said.