Banks in tussle with UAE's Etisalat on $400 mln loan - sources


* Citi, StanChart in talks to recover about $400 mln -sources

* Loan tied to Etisalat's Indian unit

* StanChart has $300 mln exposure, Citi has rest - sources

* Etisalat says not liable for loans to its Indian arm

By Dinesh Nair and Matt Smith

DUBAI, Nov 7 (Reuters) - International banks StandardChartered Plc and Citigroup Inc have fallen outwith Abu Dhabi-based telecoms firm Etisalat over $400million which they lent to Etisalat's now defunct Indianaffiliate, according to three banking sources familiar with thematter.

As a result the banks, two of the most active global lendersin the region, did not participate in the $8 billion financingwhich was arranged in April to back Etisalat's successful bidfor 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 DeutscheBank and HSBC were involved in heatednegotiations with Saudi Telecom (STC) over a $1.2billion loan which the state-controlled company had informallybacked for its Indonesian unit.

The issue was resolved after STC offered to repay about 90percent of the loan, mainly through a sale of the arm.

The latest tussle concerns a loan made to Etisalat's Indianaffiliate Etisalat DB (EDB), in which it held a 45 percentstake, which Etisalat backed through "a letter of support" - alending practice where a parent company issues an acknowledgmentof support to its subsidiary's loan proposal but does not have alegal obligation concerning the loan, the sources said.

In 2012 an Indian court cancelled EDB's wireless networkoperating licences along with those held by seven othercompanies due to a government scandal over how the 2008licensing round was conducted. Etisalat consequently wrote offthe 3.04 billion-dirham ($828 million) value of its Indianoperations and Etisalat DB eventually closed.

The loan negotiations now revolve around whether the bankshave a call on Etisalat to recover their money. However,Etisalat replaced much of its management team in 2011-2012,which makes the negotiations more complicated as thepersonalities involved in the original deal have left, thesources said.

StanChart has around $300 million exposure on the loan,while Citi has the rest, they said.

The loan value in dollar terms has fallen in recent monthsdue to a sharp drop in India's currency, one of the sourcessaid, declining to provide the exact amount.

"Etisalat DB is a separate legal entity incorporated inIndia, prior to Etisalat's investment in it," Etisalat's chieffinancial officer Serkan Okandan told Reuters by email whenasked if his company had any liability for recovery of the debt.

"Etisalat is not and has not ever been liable for the debtsand liabilities of EDB," Okandan said.

A spokesman for Standard Chartered in Dubai declined tocomment, as did a spokesman for Citigroup.

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