Reliance to raise $300 m through ECB

Reliance Industries Ltd (RIL) may become the first Indian corporate to kick off an external commercial borrowing (ECB) programme in calendar 2005.

According to investment banking sources, the company proposes to raise around $300 million five-year loan through the ECB route for funding its capital expenditure and refinancing its existing foreign currency portfolio.

Sources said the company is expected to officially give mandate for the deal to investment banks by this month-end.

"The company will get a fine price as the spat between the two brothers has not affected its loan servicing capability. The five-year facility could be priced within a band of 80-85 basis points spread over London inter-bank offered rate," said a banker.

One basis point is one- hundreth of a percentage point. Libor is the international interest rate benchmark at which the corporates raise funds overseas.

In response to an email, the company's spokesperson said: "Reliance is continuously exploring opportunities to raise debt capital within its overall financial objectives. We will inform as soon as any transaction is finalised."

The six-month Libor has shot up to 2.84 per cent against 1.8-2 per cent few months back. The six-month forward premium on dollar is hovering around 2 per cent.

Senior bankers in the international loan syndication market said the spread of papers floated by Indian corporates has shrunk. This is because of shortage of supply of AAA-rated papers as most corporates raise loans and not bonds, which are more liquid.

"Even if it's a loan, the existing pricing of bonds will influence the pricing of the loan as well," said a banker.

A five-year medium term note (MTN) recently issued by the State Bank of India to raise $ 400 million is trading at a spread of 71 basis points over Libor.

Similarly, an ICICI Bank paper which used to trade at 100-125 basis points over Libor earlier is ruling at a spread of 88 basis points.