Mumbai: Rural Electrification Corp. Ltd (REC) has invited bids from bankers to raise up to $250 million (Rs 1,395 crore) from the overseas market.
REC received Reserve Bank of India (RBI) approval last week to raise $750 million through external commercial borrowing (ECB) during the fiscal year ending March 2013. The money will be used to fund various rural power projects, both conventional and renewable, across India.
Companies do not need RBI nod to raise up to $500 million overseas. They can do so through the so-called automatic route.
“RBI has allowed us to go ahead with our fund-raising plans through ECBs. We have already invited bids for raising $150 million in the first phase,” said Hari Das Khunteta, director finance at REC.
The core size of the issue is $150 million. REC can retain another $100 million, raising the size of the issue to $250 million, under the so-called greenshoe option if there is too much demand for its bonds. The bonds will mature in three to five years.
“We are expecting to pay Libor plus 2.40% for the bonds,” Khunteta said.
Currently, six-month Libor, or the London interbank offered rate, the benchmark for all international loans, is pegged at 0.736%. However, the total cost for REC could be much higher, around 8.50%, including the forex cover it requires to protect its exposure to a foreign currency loan against currency fluctuations.
The rupee slipped 8.56% in the April-June quarter against the dollar to drop to its lifetime low of 57.33 a dollar in June. Since then it has recovered some ground. On Tuesday, the rupee closed at 55.395.
REC is yet to decide the currency for its overseas debt. In fiscal 2012, it had raised $750 million through bonds and syndicated loans in Swiss francs, Japanese yen and US dollars.
Reliance Industries Ltd had in February raised $1 billion through a 10-year dollar bond at 345 basis points (bps) above 10-year US treasury notes. One basis point is one-hundredth of a percentage point.
Around the same time, private sector lender Axis Bank Ltd also raised $500 million at 440 bps above 10-year US treasury yield. Bloomberg data showed 10-year US treasury yield is currently pegged at 2.1537%.
The bond issuances had since dried up with global economic situation worsening.
In the second half of calendar year 2011, between July and December, Indian companies’ overseas fund-raising plans were hurt with liquidity drying up and rise in cost of funds.
Global rating agency Standard and Poor’s in a recent report estimated the cost of raising funds through ECBs to be about 6%, lower than the cost of raising funds domestically.
With global central banks cutting rates and easing liquidity, the cost of money is expected to come down. The European Central Bank recently cut interest rate by 25 bps to a 13-year low of 0.75%. Central banks of China and England have infused liquidity by cutting banks’ reserve requirements. The power sector financier intends to raise another $1 billion through foreign currency convertible bonds (FCCBs) but has not got the nod of the banking regulator.
FCCBs are hybrid instruments with the characteristics of both debt and equity where the FCCB holder has the option to convert debt into shares. REC is a AAA-rated public sector company with an international rating of Baa3 by Moody’s, a global rating agency. It raised Rs 30,000 crore in 2011-12 and has kept its fund-raising target unchanged for the current fiscal year.
malvika.j@livemint.com
