Mukesh Ambani-led Reliance Industries Ltd. (RIL) raised $1 billion through a dollar bond issue. It will be using the amount to meet capital expenditure.
The process took a period exceeding a year and got investors from different places like New York, London, Singapore and Hong Kong for the first sale of bonds. The coupon bonds come with a duration of 10 years and have been fixed at an interest rate of 4.125%. This rate is 2.4% higher than the benchmark 10-year US treasury bonds.
A statement from the company stated that, “The notes were subscribed over 4.5 times across 272 accounts.” It also stated that it has got investors from fixed-income funds as well as sovereign funds and that the notes are geographically distributed as 44% in the US, 31% in Asia and 25% in Europe.
Some of the world’s most reputable banks like Bank of America, Barclays Plc., Citibank NA, Deutsche Bank AG, Hong Kong and Shanghai Banking Corp. Ltd., JPMorgan Chase and Co., Merrill Lynch and Standard Chartered Plc. feature amongst the investors.
Dhaval Joshi, an analyst from brokerage firm, Emkay Global Financial Services Ltd, expressed that Reliance’s growing debt is not concerning as its program of capital spending for refining and petrochemicals is likely to end in 2016.
Another analyst felt that the current rise in foreign debt is a good step as interest rates are low. He said that the maximum interest rate on Reliance’s present debt will be around 6-7%, which the organization can easily pay off with the returns it will receive from treasury investments.
Predictions from S&P
Standard and Poor’s (S&P) gave RIL a rating of BBB+ in the longterm;this is higher than the BBB- rating given for the Indian sovereign.
A release of S&P stated that as most of RIL’s projects in refining and petrochemicals are expected to end by March 2016, the profits of the company will soar in FY16-17.It is also hopeful that the debt-to-earnings ratio of the company will be twice more than that in fiscal 2014; will reach its peak in fiscal 2016 and will again return to the twice rate by fiscal 2018.
Reliance’s Performance in 2014
Last week’s results showed that RIL’s consolidated net profit had dropped by 4.5% – its first drop in 27 months – due to lower crude oil prices. It turned out to be Rs.5,256 crores from Rs. 5,502 the previous year.
Reliance had an outstanding debt of Rs.1.5 trillion at the end of 2014 as againstRs.1.38 trillion at the end of FY13-14. Its other income increased to Rs.2,340 crores from Rs.2, 076crores in a year.
2014 has set a record for issuance of foreign bonds outside of India. Bloomberg data stated that $18 billion dollars were raised through foreign currency bonds alone in the previous year.