RIL to raise over $1 bn through export credit

The company will have largest Export Credit Agency relationship globally with $5 billion already raised in the last two years

Mukesh Ambani-promoted Reliance Industries (RIL) is in talks with four or five export credit agencies (ECA) to raise over $1 billion (Rs 6,220 crore) in the next four months. This is a part of the company’s plan to raise $13 billion debt to fund expansion of its petrochemical production capacity and gasification project for its refining facilities to improve margins.

In the past two years the company has already tied up over $10 billion of foreign currency financing for this purpose. While about half of this is ECA backed financing backed by six ECAs, rest is from syndicated loans and foreign currency bonds. After tying up all its ECA facilities with another 4-5 ECA’s for an additional amount of $1 billion, RIL will have the largest number of ECA relationships globally.

“When we put together our plans for petro chemical and refining expansion we consciously decided that we should diversify our sources of financing for this volume and that we could not afford to be dependent on any one source of financing,” says V Srikanth, joint chief financial officer at Reliance Industries.

This would be difficult as banks would have constraint on extending their credit limit to a single corporate. So, there was a need for looking at diversification in terms of financing sources, markets the company was raising money from, the type of investors it wanted and the kind of financial products that would match its project needs.

Then the company realised that ECAs, the financial institution in different countries that provide trade financing to domestic companies are now different from what they were five years ago. RIL needs global suppliers and with the backing of ECAs in the US, South Korea, France and the UK, it was able to raise funds about 100 basis points cheaper than the syndicated loans. The bonds are 50 basis points, or even more, costlier than syndicated loans.

With higher proportion of ECA-backed loans, the company has been able to keep its cost of debt in dollar terms below five per cent. The company also has strong balance sheet liquidity and low leverage. It is rate BBB+ by Standard & Poor’s, which is two notches above the Indian sovereign. This also puts it in strong position to negotiate better cost from ECAs.

“Every source has got cost framework, but each has framework that gives some other advantages; you cannot compare it purely on cost,” says Srikanth.

ECA backed loans provide facility to avail the fund in three years period and then repay in the next 10 years. In comparison the syndicated loans have to be availed in six months and repaid in 5 to 10 years. For bonds, the money comes in immediately so there is a negative carry on till the fund is utilized.

The petrochemical business of the company is expected to utilize almost two third of the $13 billion fund, which will expand its production capacity 66 per cent to 25 million tonnes per annum.

This is the second largest business segment of the company with contribution of Rs 88,108 crore or 20.5 per cent to the gross revenue in 2012-13. Reliance Industries hopes to become the fifth largest petrochemical producer in the world with this expansion.

One third of the $13 billion fund will be sued on the gasification project which is expected to enhance refining margins by substituting the use of high-priced imported LNG with syngas produced from low-priced pet coke. GENERATING FUNDS

• In the past two years, RIL has tied up over $10 billion of foreign currency financing for this purpose
• ECA-backed loans provide the facility to avail the fund in three years’ period and then repay in the next 10 years