Hong Kong: India’s biggest company, Reliance Industries Ltd, or RIL, is seeking to borrow $1 billion (Rs4,290 crore) to fund its expansion projects, three people with knowledge of the deal said.
The company may hire banks to arrange the five-year loan in the next couple of weeks, said the people, who declined to be identified because the information isn’t public. Paresh Chaudhry, Reliance’s Mumbai-based spokesman, didn’t return phone calls from Bloomberg seeking comment.
Reliance is building an oil refinery in Gujarat that will create the world’s biggest such complex. The company, whose share price has fallen this year, will complete the refinery this year to process crude oil into petrol, diesel and naphtha for exports to the US, Europe and West Asia.
“The expansion would help Reliance improve its refining margins,” said Mumbai-based Vinay Nair, an analyst at Khandwala Securities Ltd. “The stock may rise by 15% by the end of the year even after taking into account the debt it has to incur to fund the expansion.”
Reliance shares fell 20% this year, compared with the 24% decline in the benchmark sensitive index on the Bombay Sensex. The stock gained 127% in 2007.
Chairman Mukesh Ambani earns more from each barrel of oil than overseas refiners by processing cheaper, lower grades of crude at a plant two days away by ship from West Asian oil fields. Reliance earned $15.5 from processing a barrel of oil into fuel in the quarter that ended on 31 March, compared with $7 for a plant in Singapore, the company said on 21 April.
Ambani, the second richest Indian and the world’s fifth wealthiest according to Forbes magazine, needs higher profits to fund $24 billion of planned investments in chemical projects in the gas-rich West Asia and increase oil and gas exploration to benefit from record energy prices. The expansion will help Reliance triple earnings in the next five years.
Reliance’s profit rose 24% to Rs3,910 crore ($911 million) in the three months to 31 March. RIL operates a 660,000-barrel-a-day refinery at Jamnagar in Gujarat. It is also setting up a 580,000-barrel-a-day plant under unit Reliance Petroleum Ltd. The combined facility will be the world’s biggest refinery, according to Reliance.
The company raised $500 million from a five-year loan in September, paying interest that’s 0.39 percentage point above the London interbank offered rate, Bloomberg data show.
Credit-default swaps on Reliance Industries declined about 8 basis points (0.08 percentage point) at 11am in Hong Kong to 212.5, according to BNP Paribas SA’s prices. That means it costs $212,500 a year to protect $10 million of Reliance’s debt from default for five years.