Hong Kong: Reliance Communications Ltd , the second-biggest carrier in the world’s fastest-growing cellular market, raised $1 billion in India’s largest convertible bond issue to meet heavy spending needs.
Reliance is vying with Britain’s Vodafone Group and domestic firms to buy smaller rival Hutchison Essar. But one of the bankers handling the convertible bond issue said proceeds would be earmarked for capital expenditure.
“This is primarily for organic growth,” Vedika Bhandarkar, head of investment banking at JP Morgan in India, told Reuters.
Reliance, which had more than 30 million mobile customers at the end of 2006, has budgeted $2.5 billion in capital spending, and also planned to invest $1.5 billion in undersea cable arm Flag.
“The capex plans are huge, given the growth potential, and they may need more funds given that they are bidding for Hutchison Essar,” said an analyst at a brokerage in Mumbai.
The offer was “multiple” times subscribed, another person familiar with the deal said, reflecting robust global demand for access to an economy growing in excess of 8 percent a year.
Shares in Reliance skidded 4.1 percent by 0703 GMT on Tuesday to 493.75 rupees. Through Monday, Reliance shares had risen 9 percent since the start of the year, topping the 5.3 percent gain in the Sensex. Reliance shares had gained 176 percent since a low reached last June during a sharp correction by Indian shares.
Eyeing Hutchison Essar: Reliance and Vodafone are regarded as front-runners in bidding for the 67 percent stake in No. 4 operator Hutchison Essar owned by Hong Kong’s Hutchison Telecommunications International Ltd a unit of Hutchison Whampoa
Bidding for Hutchison Essar, a joint venture between Hutchison Telecom and India’s Essar group, is expected to value the firm at as much as $20 billion. Essar and India’s Hinduja group are also eyeing control of Hutchison Essar.
Would-be buyers are attracted to a market adding 6 million users a month, although tariffs can be as low as 1 or 2 U.S. cents per minute.
The five-year, zero-coupon convertible bonds have a yield to maturity of 4.95 percent and a redemption price of 127.69 percent, the term sheet said. The conversion premium is 30 percent over a reference share price of Rs 508.6378 , terms the Mumbai-based analyst said are attractive for Reliance.
“This is probably the best any Indian company can get at this point,” the analyst said.
The deal was handled by HSBC and JPMorgan, and follows a $500 million convertible bond sale by Reliance Communications in March 2006.
Indian convertible issuance rose 50 percent in 2006 to $5.37 billion, according to Dealogic. Such deals yield notoriously thin fees for banks in the fiercely competitive Indian market.
The previous record-holder for an Indian convertible was the $725 million issue in January 2006 by Vedanta Resources .
Separately, Reliance Communications won government approval in January to issue of $1.2 billion in overseas shares.