Ambani loans spur biggest bond yield drop since 2009

Yields on the convertible bonds of Anil Ambani’s Reliance Communications are falling by the most in two years after the company obtained loans from Chinese banks, giving it a bigger cash cushion to meet debt payments.

The yield on Reliance Communications’ note due March 2012 that investors can exchange for shares slid 4.04 percentage points to 9.10% last week, the most since April 2009, Cantor Fitzgerald prices show. Yields on India’s convertible bonds jumped to as high as 35%, more than six times those on similar Chinese securities.

Reliance Communications, which increased net debt almost five-fold in three years to R32,400 crore ($7.2 billion) at the end of 2010, said on March 9 that it will save money by borrowing R8,700 crore from a group led by China Development Bank to refinance the purchase of third-generation airwaves and buy equipment. India’s second-biggest phone company fell 33% this year, helping turn the BSE Sensitive Index into Asia’ worst performer.

“The pressure is relieved,” said Manish Dangi, who manages the equivalent of $14 billion as head of fixed income at Birla Sun Life Asset Management in Mumbai. The company had an “asset-liability mismatch” and “people were wondering how it would be handled,” Dangi said. Ambani, whose wealth slumped by 79% since 2008, faces rising debt costs after the RBI raised interest rates seven times in the past year to curb inflation.

Reliance Communications will save R500 crore a year in interest costs with the 10-year loans from the Chinese banks, the company said in a statement to the BSE on March 9. The new financing and reports the same day that American Tower is one of four bidders vying for its tower assets pushed the company’s shares up by the most in more than two months. Gaurav Wahi, a spokesman for Reliance Communications, didn’t answer two calls and an email seeking comments.

Improved finances at Reliance Communications may revive investor confidence in convertible bond market as about $375 million of the company’s notes mature in May.

“This will definitely improve” the firm’s “balance sheet and debt position of the group,” said KK Mital of Globe Capital Market in Delhi.

“News of loan from China Development Bank eased out worries in investors who have an exposure to Reliance Communications’ 2011 bonds,” said Raj Kothari, a London-based trader of convertible bonds with Sun Global Investments.

The net worth of Ambani, 51, shrank to $8.8 billion this year, making him India’s eighth-wealthiest person, according to Forbes.

Reliance Communications has R2,690 crore of syndicated loans and bonds due in 2011, according to Bloomberg data, equivalent to 58% of its profit in the most recent fiscal year ended March 31, 2010. A further R5,430 crore mature in 2012.

Source: Financial Express