Chinese banks’ $2.5 bn loan to Airtel is a trend setter

The big loan availed by Airtel from the two Chinese banks strengthens the Asian power’s rising status as a global lender. At the same time, every chance is that the loan will be followed by Airtel’s equipment order from China for its mobile data network expansion.

Airtel has secured $2.5 bn from China Development Bank and Industrial Commercial Bank of China during the visit of PM Narendra Modi.

In most cases, the loans will be denominated in Renminbi; the Chinese currency. There is every chance that the Airtel loan also will be a renminbi denominated loan.

First major loan intake by an Indian company from China was Reliance Power and Reliance Communications, three years back.

Reliance communications used its loan to repay the debt and the loan was conditioned by RCom’s purchase of telecom hardware equipments from China. Reliance power also purchased machineries for its UMPP from China.

Usually, China is providing loans to foreign countries provided that they are purchasing Chinese goods. Airtel, the largest telecom company in India, with renewed spectrum supply, is in a data service expansion mode. Like all other players, heavy license fee in spectrum auction has severely affected the company. Hence the China loan will help it to expand data networks.

On the other hand, extension of loans will help Chinese telecom equipment manufactures like Huawei and ZTE to get hardware order from Airtel.

Airtel’s loan indicates that the India-China economic engagement will attain more depth through the loan channel besides the trade channel.

China is quickly emerging a source of corporate loans and many banks like the China Development Bank and the Industrial and Commercial Bank of China are giving loans to companies from developing countries. Around $ 4 trillion foreign exchange reserve is making China as one of the largest provider of credit in the new global environment. The power of this big foreign exchange reserve has enabled it to create two potentially powerful international institutions- the AIIB and the BRICS bank. 

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