Reliance Industries Ltd on Wednesday paid back a syndicated foreign loan of $125 million one year ahead of due date. It is the first external commercial borrowing (ECB) taken by a private company in the country.
Taken in 1995, the loan had a seven-year maturity and an interest rate of (London Interbank Offered Rate) Libor plus 175 basis points and was to be paid back by October 2002. The company refinanced the loan twice to bring down the interest rate to Libor plus 100 basis points.
Reliance has taken foreign loans of over $1 billion that have been used in various projects. By paying this loan, the debt-equity ratio of the company would come down to 0.7.
A company spokesperson said, "Yes, we have completed the transaction. This forms a part of our continuos measure to reduce our borrowings, strengthen the balance sheet and reduce interest cost further."
The group has been retiring much of its loans taken from domestic and foreign financial institutions and banks. It has committed to prepay the entire outstanding loans of Rs 1,100 crore with the domestic financial institutions by September 30, 2002 -- this includes Rs 500 crore to ICICI, Rs 500 crore to IDBI and Rs 100 crore to IFCI.
The loans are being prepaid from the group's internal cash flows, which stood at Rs 6,552 crore last year. The recent sale of the 10 per cent equity stake in Larsen & Toubro to the Aditya Birla group will add another Rs 360 crore to the overall cash flows.
The group has already prepaid Rs 1,400 crore loan to ICICI two months ago, another Rs 1,200 crore to ICICI in 1999 and Rs 900 crore to IDBI last year.
With an asset base of over Rs 50,000 crore, the group has decided to prepay the high-cost debt taken in 1997 at interest rates of over 15-17 per cent compared with 11 per cent now.
Considering its high ratings by rating agencies, the group had been able to borrow from the market at interest rates much lower than that offered by domestic financial institutions.
