International banks Standard Chartered Plc and Citigroup Inc have fallen out with Abu Dhabi-based telecoms firm Etisalat over $400 million which they lent to Etisalat's now defunct Indian affiliate, according to three banking sources familiar with the matter. As a result the banks, two of the most active global lenders in the region, did not participate in the $8 billion financing which was arranged in April to back Etisalat's successful bid for Vivendi's 53 percent stake in Maroc Telecom, the sources said.
Facing tougher capital rules since the financial crisis, banks have been getting tougher on trying to recover debts. Reuters reported in August that lenders including Deutsche Bank and HSBC were involved in heated negotiations with Saudi Telecom (STC) over a $1.2 billion loan which the state-controlled company had informally backed for its Indonesian unit.
The issue was resolved after STC offered to repay about 90 percent of the loan, mainly through a sale of the arm.
The latest tussle concerns a loan made to Etisalat's Indian affiliate Etisalat DB (EDB), in which it held a 45 percent stake, which Etisalat backed through "a letter of support" - a lending practice where a parent company issues an acknowledgement of support to its subsidiary's loan proposal but does not have a legal obligation concerning the loan, the sources said.
In 2012 an Indian court cancelled EDB's wireless network operating licences along with those held by seven other companies due to a government scandal over how the 2008 licensing round was conducted. Etisalat consequently wrote off the 3.04 billion-dirham ($828 million) value of its Indian operations and Etisalat DB eventually closed. The loan negotiations now revolve around whether the banks have a call on Etisalat to recover their money.
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