Mukesh Ambani-led Reliance Industries states that it will be issuing a loan of $750 million from the overseas market. The debt will be raised through unsecured notes with a tenure extending till 2045.
The company has raised its foreign debt in a second venture in two weeks. The rate of the Notes is fixed at 262.5 basis points more than the 3 decades US Treasury Note. It comes out to be $98.865 and gives an outcome of 4.948%.
The Notes were subscribed 3.07 times more than 167 accounts. The interest rate on the Notes has been fixed at 4.875% per annum. The interest needs to be paid twice in a year on the outstanding debt. The rate will be equal to all the other unsecured bonds of the company. Reliance will be utilizing the amount for its current capital investments. As a result, Rs. 1.8 trillion will be used in the upcoming years.
With a rating of Baa2, the issue is said to be of moderate credit risk by Moody’s Investors Service. Moody has anticipated that the company will enhance its investments and growth with its expertise and financial flexibility. This will help the organization to improvise and expand its business activities.
According to Vikas Halan, Moody’s Vice President and Senior Credit Officer, the rating given to Reliance shows that the company has a leading position in the market and a competitive stand. The company has also acquired more margins than other companies and a ‘vertically-integrated operations across the hydrocarbon chain.’ He said, “The rating also recognizes Reliance’s moderate financial leverage, strong operating cash flow and excellent liquidity.”
He further added that they have predicted Reliance’s credit metrics to remain stable for at least a year. This is because the company has high income from its refining and petrochemical sectors. Thus the debt taken will not affect the growth of the company. He informed that they feel the credit profile of Reliance will be enhanced when the planned capex will be completed. This is because the profit margin of projects in refining sector will be increased by $2.0 – $2.5 on each barrel.
Earlier on 22nd January, this year, Reliance sold its 10-year bonds and acquired debts worth $1 billion. The interest rate was fixed at 4.125% which turned out to be the lowest in Asia and has negligible new-issue premium. However, the rate was 2.4% higher than the benchmark set by 10-year US treasury bonds.
Renowned banks like HSBC, Citi, Bank of America Merrill Lynch and Barclays are amongst the lead issuers. Standard and Poor’s (S&P) has rated this bond as BBB+ as against the BBB- that it gives to Indian sovereign.
With the end of 2014, Reliance had total cash and its equivalents worth of Rs. 787 billion as against the total loan of Rs. 1.5 trillion. It also took $3.3 billion in forex debt, last year.
Impact on shares
Reliance’s shares closed at Rs. 937.45 on Bombay Stock Exchange (BSE) on 3rd February, 2015. This is at a high of 3.25%.