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Business News/ Companies / News/  With new bond sale, RIL foreign borrowings at $10 bn in three years
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With new bond sale, RIL foreign borrowings at $10 bn in three years

The sale is likely to kick off on Tuesday and be completed within a day, according to a source

Reliance Industries, which is rated Baa2/BBB-/BBB-, decided not to launch on Monday to wait for the impact of non-farm payrolls to settle in credit markets. Photo: Priyanka Parashar/MintPremium
Reliance Industries, which is rated Baa2/BBB-/BBB-, decided not to launch on Monday to wait for the impact of non-farm payrolls to settle in credit markets. Photo: Priyanka Parashar/Mint

Mumbai: Reliance Industries Ltd (RIL), India’s largest private sector company by revenue, is set to raise $1 billion by selling 10-year bonds to investors abroad, taking the company’s foreign borrowings to more than $10 billion over the last three years. Four persons familiar with the transaction confirmed that the bond sale is likely to kick off on Tuesday and close within a day.

“This is a big issue, but highest-rated companies like Reliance should not have any problem in garnering the money because there is enough liquidity in the international markets," said one of the persons quoted above, adding that the money is likely to be used for capital expenditure.

RIL did not reply to an email sent on Monday morning seeking comment.

RIL kicked off a fresh cycle of investments starting 2012, as it prepared to roll out its fourth generation (4G) telecom services and expand its petrochemical capacity by nearly 60% by 2017. At its annual general meeting on 18 June, chairman Mukesh Ambani said the company is in the midst of a major investment cycle and would be investing up to 1.8 trillion, or almost $30 billion, over the following three years. It is estimated that the company’s 4G venture, Reliance Jio, will require an investment of $11.7 billion. The venture is likely to be rolled out by the beginning of 2015-16.

Much of the investment in Reliance Jio and petrochemicals is being funded through overseas borrowings. According to company announcements, in 2012, RIL raised $5.6 billion through foreign currency loans and bonds. In 2013, it raised $800 million. And thus far in 2014, it has raised $3.3 billion, taking its total overseas borrowings to $9.7 billion over the three-year period. Tomorrow’s bond sale will take the number to $10.7 billion, making the company one of the most prolific borrowers out of India.

“Reliance is among the top two or three highest-rated companies in India, and demand for Indian paper has been strong recently because of easy liquidity in the international markets," said the first person.

In May 2013, rating agency Standard and Poor’s (S&P) revised Reliance’s credit rating to “BBB+" from “BBB". RIL’s rating is now two notches above India’s sovereign rating.

While RIL has been an active borrower both in the overseas loan and bond markets, the latest bond sale will be the first time the company taps the overseas bond market since 29 January 2013, when it raised $800 million by issuing perpetual bonds at a coupon rate of 5.875%—the first such issuance out of Asia. A perpetual bond is one which has no fixed maturity date. Such bonds are typically issued by the highest-rated companies. Earlier in February 2012, the company raised a total of $1.5 billion by selling 10-year bonds maturing in 2022 in two tranches of $1 billion at 5.4% and another $500 million at 5.4%.

“The indicative pricing for the bond is yet not decided and is likely to be known only late night (Monday) or early tomorrow. It will be a fixed rate bond like the previous RIL bonds because the company prefers a fixed rate instrument. It will be listed in Singapore," said a second person familiar with the matter. He confirmed that 11 banks had been hired for the bond sale, mostly those “which have an ongoing relationship" with the company.

The first person added that he expects the RIL bonds to be issued at coupon rate of about 175 basis points above US 10-year treasuries, which were trading at a yield of 2.30% on Monday. A basis point is one-hundredth of a percentage point.

HSBC, Bank of America Merrill Lynch and Standard Chartered are the three global coordinators or the main banks for this deal.

2014 has been a record year for foreign bond issuance out of India. Since the start of the year, more than $18 billion has been raised through foreign currency bonds alone, according to Bloomberg data. Strong demand for debt issued by Indian firms has also led to a drop in the cost of borrowing for Indian firms this year.

According to Jagannadham Thunuguntla, head of research at SMC Global Securities Ltd, many Indian companies want to raise dollar funds before the US Federal Reserve starts raising interest rates, which could make it more expensive to raise debt denominated in dollars.

“One should raise the money not when a company needs, but when a company can," he said.

However, analysts who track RIL say the company needs to keep a watch on its borrowings.

“RIL has annual cash flows of almost $4 billion and this should be enough to suffice its yearly capex (capital expenditure) appetite. Increasing debt through bond issues and other means is not financial prudent when the company is already carrying a huge debt burden," said S.P. Tulsian, an independent investment adviser.

As on September 2014, RIL had an outstanding debt of 142,084 crore, compared with 138,761 crore as on 31 March 2014. Its cash and cash equivalents as on 30 September 2014 were at 83,456 crore.

Tulsian said RIL may be looking to take advantage of the spread of interest rates between its receivables and payables, which is not its core business.

Apart from the investments in its telecom business, RIL is in the midst of a $16 billion investment cycle to expand its petrochemicals capacity. The investments, which kicked off in 2012, are likely to conclude by 2017.

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Published: 08 Dec 2014, 09:55 AM IST
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