MUMBAI: India's second most valuable company, Reliance IndustriesBSE -0.48 %, on Wednesday finalised terms with a consortium of leading banks to raise $1.75 billion by way of overseas borrowings. While $1.2 billion will be used to refinance a five-year, multi-currency facility, $550 million of new money will be repayable after seven years, making it the longest tenure for an unsecured loan of a similar size across Asia this year.
This will be used to fund new projects apart from the ongoing expansion and modernisation of its refining and petrochemical businesses. Interestingly, this is also the largest unsecured syndicated loan by an Indian company with a tenure in excess of five years in the last three years.
"Even in these turbulent times, for the right company and right project, international banks are fully supportive. Nothing has changed for them," said Alok Agarwal, chief financial officer, RIL, adding, "In fact, the risk premium has gone down."
RIL has raised the money at Libor plus 175 basis points which is cheaper by 60-70 basis points when compared to the last tranche of loans raised just six months ago. However, this is just the first tranche of a large-scale fund raising exercise that RIL has lined up for the next few months, said officials familiar with the plans.
ET in its August 9 edition had first reported about the company's plans to raise close to $4 billion in the next few months from financial institutions, banks and other trade agencies. This fund raising is significant in the current backdrop of extreme pessimism over policy paralysis and regulatory delays in India.
Agarwal, however, refused to divulge future fund raising plans. For Reliance, which generates almost 65% of its revenues abroad, largely from export of petroleum products, the plan will be to lock in borrowing costs before the US Federal Reserve starts pruning its monetary stimulus — the $85 billion monthly bond purchase programme, said multiple officials in the know of RIL's plans.
Agarwal told ET, "When it comes to our financing strategy, we have three principal pillars. Firstly, we have been raising long-term money from exim banks and export credit agencies for our equipment imports across various projects in the group. Secondly, we have been tapping the capital markets to raise foreign currency bonds in the US and in India. Thirdly, we have also been regularly tapping the loan market. We have nurtured relationships with our core banks for over a decade and today's commitment is a testament of that."
Many Indian companies, including Essar Steel, Adani Enterprises and JSW, have approached bankers to help them raise close to $5 billion overseas, largely to refinance and swap their high-cost rupee borrowings with cheaper foreign currency.
RIL is among a handful of local blue chips, which still are keen to make fresh investments in India. Since the beginning of 2012, the company has raised close to $10 billion across group companies in India and the US. Out of that, $6.4 billion has been in the form of external commercial borrowings (ECBs), a lion's share of which will be drawn down over the next 2-3 years. This has a direct bearing on India's widening current account deficit.
Reliance alone can push the needle on dollar inflows when the government is desperately trying to raise at least $5 billion through a sovereign bond or leverage PSU balance sheets.
If the company draws down the overseas loans that it had already raised in the last 18 months for bankrolling the capex of its largest ever organic expansion, then in theory, it can ease the liquidity pressure and prop up the tottering rupee.
The company has already outlined its plans to spend Rs 1.5 trillion ($24.6 billion) over the next three years to grow its diverse set of businesses like natural gas, petrochemicals and telecom. And most of the recent fund raising was just to support the planned $12-14 billion petrochemicals expansion in Gujarat which started end 2010.
The company, said Agarwal, is further buoyed by the upgrade from international ratings agency Standard &Poor's (S&P) this May to two notches above that of the Indian sovereign. "Reliance's articulation of its growth strategy removes the uncertainty regarding the company's use of its high cash balance," said S&P's credit analyst Andrew Wong while explaining the rationale behind the upgrade.
S&P bucked the trend to acknowledge the strength of the company balance sheet and cash-utilisation plans. As on March 31, 2013, RIL held nearly Rs 83,000 crore (nearly $15 billion) in cash and cash equivalent. It is also a net debt-free company since its cash reserves are higher than its borrowings.
"India is still the centre of our gravity. Despite the negative sentiments, our local businesses have not seen any impact on demand. Our petrochemical business is fully sold out," said Agarwal.