RIL raises $800 million through perpetual bond

First issuance of such bonds in the world at below 6%

Reliance Industries, India's most valued company, raised $800 million (Rs 4,300 crore) through perpetual bonds from investors abroad to fund its Rs 1 lakh crore capital expenditure plan to expand petrochemicals business and ramp up oil and gas exploration in the next three to four years. It raised the capital at a coupon rate of 5.875%, making it the first issuance of perpetual bond below six% in the world.

 

Perpetual bonds by definition has no option to repay the principal amount and it is seen as one of the cheapest ways for raising capital. However, the company has a call option at the end of five years which it may exercise if it finds cheaper options of financing available in the market. The bond holders can sell their holding in the secondary market.

The issue was distributed primarily across the world with Asia having over 50% share. It had participation from both retail as well as intuitions such as life insurance companies. Citi, Bank of America Merill Lynch, HSBC, J P Morgan, RBS, Barclays were the bankers to the issue.

 

The company's debt profile also includes 10 and 30 years bonds and bank loans which have 5 to 6 years of maturity period. The company had Rs 58,627 as debt on its balance sheet at the end of March 2012. Including the current issue it further raised $4.8 billion in the current financial year.

 

"We want 50% of our debt to be held by public in the next 3 to 5 years," said a company source who did not wish to be quoted. "Currently it is 20% with public while the rest is through syndicated loans," he said. The company also has a natural inclination for longer duration debt.

 

The company is also sitting on a cash pile of Rs 75,000 crore and is using the low interest rates in the markets to cut costs of its debt. Soon after its third quarter results, Reliance said that it expected KGD6 gas volumes to weaken till FY15, pending completion of booster compressors at D1-D3 fields. Reliance is drilling a development well in the satellite fields and plans to file an integrated field development plan ( IFDP) in the current quarter. When developed, IFDP will drive new volumes after FY16.

 

In addition, the company has low leverage, and strong cash flows and liquidity. Standard & Poor’s (S&P) ratings services had assigned its 'BBB' long-term issue rating to Reliance’s unsecured perpetual notes. "The rating on Reliance reflects the company's strong competitive position and good business diversity,” it said in a statement.

S&P added that there were factors that could temper these strengths. Reliance’s vulnerability to the cyclical nature of its industries and commodity prices, exposure to country risks in India, falling production at Krishna Godavari basin, and the company’s aggressive growth strategy were some.

“The company’s ‘satisfactory’ business risk profile reflects the company's competitive strength, which we attribute to its large scale and integrated and efficient oil refining and petrochemicals operations,” the statement added.

Reliance’s ‘intermediate’ financial risk profile reflects the company’s low debt. “We expect Reliance’s ratio of debt to Ebitda (earnings before interest, taxes, depreciation, and amortisation) to be below 1.2x for the next two years. We have adjusted the debt for cash and cash equivalents exceeding Rs 75 billion (Rs 7,500 crore). Nevertheless, the company’s use of its high cash holdings of more than $14 billion will highly influence its financial metrics,” S&P said.

According to the rating agency, the positive rating outlook on Reliance reflects its view that the company has a large cash surplus to protect its financial strength against any potential deterioration in operating conditions.