Reliance Industries Limited (RIL) raised $4 billion from global investors through a bond sale that was oversubscribed by three times. Around 53 per cent of the notes were distributed to investors based out of Asia, 33 per cent to the United States and 14 per cent to Europe. The order book totalled to $11.5 billion.
However, the transaction has several significant positive implications about the growing acceptance on Indian credit in international markets. The funds raised would be used to refinance Reliance’s debt for the future period.
Long Tenured Bonds
Reliance raised money in three tranches — $1.5 billion at 2.875 per cent for 10 years, $1.75 billion at 3.625 per cent for 30 years, and $750 billion at 3.75 per cent for 40 years. The second and last tranches will repay the loans over the next 30 to 40 years.
The enthusiastic response to such long tenures indicates investor optimism over the long term around Reliance. Usually, corporates do not raise money at such low rates over such long periods of times. Sovereign credit has the privilege of issuing long tenured 40 year bonds.
Apart from a Japanese company, no other BBB graded company in Asia has raised money for 40 year tenure. S&P Global had given the bond issue a BBB rating. The debt would be at par with other unsecured and unsubordinated liabilities of RIL.
Another interesting factor is the fairly low premium the company would pay over the respective United States’ benchmark treasuries. The difference between the treasury rate and the bond rate is known as spread. Usually, a safer security has a smaller spread. According to Reliance’s press release, the spread is the lowest ever over the US treasury on a security issued by an Indian company.
“We are extremely pleased with the strong outcome on our multi-tranche long dated US dollar bond issuance, having issued not only the largest debt capital market transaction at $4 billion but also the tightest credit spreads across each of the long-dated tenors for any corporate in India,” said Srikanth Venkatachari, the joint chief financial officer of Reliance.
Lower Cost Of Credit Could Be A Positive
With a refinancing at a low cost of capital, RIL can become more competitive over time. The company’s chairman, Mukesh Ambani, had announced that the company had become net-debt free after raising funds through a rights issue along with stake sales in Jio Platforms and Reliance Retail.
Given the capital-intensive nature of the oil, retail and telecommunications businesses, debt had been piling up at RIL for years. With a lower cost of credit, Reliance would be more competitive as compared to its competitors in the segments it operates in. Other companies might not be able to access credit at such tight spreads as Reliance.
Fund managers seem to be enthused with Reliance’s offering, lapping up 69 per cent of the issue, followed by insurance companies, banks, and public institutions that picked up 24 per cent, 5 per cent and 2 per cent of the notes respectively.
As you are no doubt aware, Swarajya is a media product that is directly dependent on support from its readers in the form of subscriptions. We do not have the muscle and backing of a large media conglomerate nor are we playing for the large advertisement sweep-stake.
Our business model is you and your subscription. And in challenging times like these, we need your support now more than ever.
We deliver over 10 - 15 high quality articles with expert insights and views. From 7AM in the morning to 10PM late night we operate to ensure you, the reader, get to see what is just right.
Becoming a Patron or a subscriber for as little as Rs 1200/year is the best way you can support our efforts.