RIL goes for overseas funds

Reliance Industries, which is sitting on over Rs. 75,000 crore in surplus cash, on Monday launched issue of bonds in Hong Kong and Singapore markets to raise a minimum US $500 million (around Rs. 2,700 crore), company sources said.

This is the fifth time that the Mukesh Ambani-led company is raising long-term debt this fiscal. So far, it has raised US $4 billion from overseas in the current financial year.

“The company is planning to raise at least US $500 million by issuing perpetual bonds. The issue hit the markets today and the final amount will depend on the investor appetite. The initial pricing is 6 per cent over the US treasury,” an RIL official said.

Perpetual bonds are those with no maturity date, which may be treated as equity and not as debt. Perpetual bonds come in the form of pay coupons and the issuer does not have to redeem them. Their cash flows are, therefore, those of perpetuity.

However, the official expressed hope that the final pricing will be much below the guidance because of the strong fundamentals of the company. When asked why it is raising debt despite sitting on over Rs. 75,000 crore surplus cash, the official said, the interest rates are at historical lows and hence it’s good time for RIL to raise long term money. He further said Bank of America, Citi, HSBC, Barclays Deutsche Bank, JP Morgan and RBS are mandated for the issue.

The RIL official also said this is the first long-rated bond issuance by a domestic company. The funds will be used to meet the capex (capital expenditure) requirements of the company that runs the world’s largest refinery at Jamnagar.

“The proposed notes will rank equally with all the company’s other present and future unsecured and unsubordinated obligations,” S&P said in a note from Singapore. “The rating reflects the company’s strong competitive position and good business diversity. In addition, RIL has low leverage, and strong cash flows and liquidity,” it added.

This bond represents the first senior long dated/perpetual issuance by a domestic company after Tata Power’s recent hybrid, RIL official said, adding only a select few Asian issuers have been able to access this market.

The transaction extends Reliance’s maturity profile and establishes Reliance’s credit curve in 10-year, 30-year and perpetual bonds, the official added.