RIL's $4-bn forex bond: India Inc's fundraising in 2022 begins with a bang

Renew Power, Shriram have queued up to raise dollar bonds after RIL raises $4 bn in India's largest-ever foreign currency bonds issue

The jumbo dollar fund raising by Mukesh Ambani’s Reliance Industries has set the tone for other Indian corporates and banks for the rest of the year. Bankers expect the Reliance issue, with its size, tenor and pricing will encourage India Inc to start raising funds, particularly as growth momentum picks up over the next two quarters.

After RIL, Renew Power has also entered the market for a $500-million fundraise and Shriram Transport has also now evinced interest to raise funds via dollar denominated bonds.

Largest in SE Asia

There are three important dimensions from the RIL’s $4-billion bond fundraise, which has been subscribed by global players like Fidelity, Blackrock, Metlife, AIA, Lombard Odier, Eastspring, Neuberger Berman, PIMCO, G SAM, among others.

First is the size itself. A $4-billion deal is unheard of, at least in South East Asia. The deal is large even by global standards.

“The Reliance Industries $4-billion bond issuance is a milestone transaction in many ways, with it being the largest ever private sector US$ bond deal from South & South East Asia, the first ever triple tranche issuance and the first ever 40-year issuance from India,” said Asit Bhatia, Managing Director, Global Corporate and Investment Banking, Bank of America.

“The phenomenal response to the bond issuance clearly demonstrates the quality of the RIL credit and also evidence that there is tremendous global liquidity available for well rated Indian issuers, who will be able to get size and tenure,” Bhatia told Business Standard.

Second important aspect of the deal is the tenor. The $4-billion issue has been raised in three tenors – 10 year, 30 year and 40 year.

“Not many companies can raise money for 40 years. Typically, a sovereign raises such long tenor funds. Companies raise for a maximum of 15 years,” said another banker involved in the fund raising.

And the pricing. The 10-year notes were raised at 2.875%, the 30 year at 3.625% and the 30 year at 3.75%. The entire funds were raised at rates which were much less than 4%. The notes have been priced at 120 basis points, 160 basis points and 170 basis points over the respective US Treasuries benchmark.

“The peak order books were over $11.5 billion. RIL printed the lowest ever 30 year coupon and the lowest ever reoffer spread on a 10 year bond from an Indian issuer,” Bhatia said.

BoFA Securities, Citigroup, and HSBC acted as Joint Global Coordinators for the deal. BofA Securities, Citigroup, HSBC, Barclays, JP Morgan and MUFG acted as Joint Active Bookrunners, RIL said in a statement.

What it means for RIL

And there is a fourth dimension also. That is the company itself. The deal’s size, pricing and duration betray how the global market views India’s most valuable company by market capitalisation.

“What this deal suggests is that capital markets globally are clearly recognizing Reliance as someone they are comfortable taking extreme long duration at extremely fine pricing,” said a second banker involved in the deal.

The deal shows that the international capital markets are accepting Reliance as a big player in the global market.

“The deals also speak about how Reliance has transformed itself in the last 5-7 years. It is an acceptance now that Reliance is now treated as a global player on all fronts – governance, credit risk, management,” the banker said.

Timing

The timing of the fundraising exercise was impeccable. Interest rates are set to rise, both in India and globally. Most Indian companies preferred to raise funds domestically last year as interest rates were low, so there was not much demand from Indian companies in the international market.

“The overseas markets are looking for good credit, the markets have dried up because there were not many issues, and Indian papers have tighter spread,” said Ajay Manglunia, MD & Head of Investment Grade Group, JM Financial.

Global investors are preferring Indian companies to China and some other geographies since India's growth was much better, which has resulted in tighter spreads.

“India looks attractive for global investors and they are hungry for Indian credit. Reliance might have taken the advantage of the current environment and borrowed a larger amount because they have the ability to deploy in the treasury operations at a better rate,” Malgunia said.

Last year RIL Chairman Mukesh Ambani declared the company as debt-free after a spate of equity fund raising. Market participants said the proceeds from this fundraising could also be because of redemptions coming up in the next few months, apart from deployment in treasury operations.

The India story

There is an India aspect also in this RIL’s mega fund raising exercise. Bankers said overall there is a sense that the economy is coming out of the pandemic in a great shape. The international community is reflecting it through the demand for India’s paper, they said. 

“We are literally 2-3 quarters away from capex demand. Demand is such that corporate boards which were hitherto risk averse but now found a lot of debt repayment happened in the last two years. Next round of fundraising will also be for capex and not for refinancing,” said a banker quoted above.

Notwithstanding the recent surge in infections due to Omicron, there is an expectation that the country will clock double digit or close to double digit in the current financial year. The Reserve Bank of India projected India’s real GDP at 17.2 per cent for the first quarter of the next financial year and 7.8 per cent for second quarter.

“The RIL issuance sets the tone for the rest of the year. I reckon some high quality Indian companies will follow suit and tap the market to fund capex and growth requirements,” Bhatia of Bank of America said.