India's economy rarely opens the front door to China. But New Delhi shouldn't be too concerned that China has found a new point of entry.
Reliance Communications Ltd. opened a window this week. India's second-largest mobile phone carrier by number of subscribers was under pressure to refinance $1.18 billion of foreign-currency convertible bonds. In the current market, that looked like a stiff challenge, as lenders in the U.S. and Europe struggle with their deteriorating economies.
Enter a consortium of Chinese banks to bail out the Indian company with a loan paying just 5%. The deal gives the banks the sort of exposure to India's fast-growing communications space that Chinese companies couldn't get otherwise. New Delhi routinely blocks Chinese business seeking a piece of India's strategic industries such as telecommunications, technology or energy. The government typically cites quality-control issues or national security, though political posturing is perhaps a more likely cause.
Yet the Reliance loan deal puts the Chinese banks in a strong position over a prominent Indian business. It might also help China Inc. get more leverage in the Indian economy.
Still, politics shouldn't cloud the positives for India. The deal is a savior for Reliance, whose share price is nearly 87% below the conversion price set on the bonds four years ago. Moreover, the loan means China, through its state-owned banks, now has a significant stake in the success of an Indian telecommunications giant.
Beyond Reliance, a host of Indian companies are in need of capital this year to fulfill expansion plans or repay debt. But traditional funding channels are drying up, local markets are jittery and interest rates are by no means cheap. Under those circumstances, more Chinese money may find a warm welcome in India.