Reliance Industries Raises Rs 8,500 Crore In Bonds But Rates Rise
Reliance Industries Ltd.’s logo is displayed at the company’s fuel station in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Reliance Industries Raises Rs 8,500 Crore In Bonds But Rates Rise

Reliance Industries Ltd. raised Rs 8,500 crore in three-year bonds, just short of its target of raising Rs 9,000 crore. The two-part non-convertible debenture issue saw interest from large banks but at a higher coupon rate than what was paid in previous issues.

The country’s primary bond market has been sluggish in the last two months due to heightened risk aversion amid the economic uncertainty brought on by the spread of Covid-19. While a handful of companies have raised funds over the last two weeks, most have had to raise smaller amounts at higher rates.

In order to boost the primary debt markets, the Reserve Bank of India had said that half of the Rs 1-lakh-crore infused via targeted long-term liquidity operations should be invested in primary issues.

RIL’s bond issue fared well in the current circumstances, said bankers.

The Rs 9,000-crore issue had two equal parts: a fixed coupon tranche and a floating rate tranche. The bonds were rated AAA by Crisil Ratings and Care Ratings.

  • Investors subscribed to Rs 4,000 crore for a three-year period at a fixed coupon rate of 7.2 percent. This is 200 basis points above the three-year government bond yield as on April 16. The spread sought by investors is about 60 basis points higher than what RIL paid about a year ago.
  • The floating rate issue saw investors pick-up the entire Rs 4,500 crore at a coupon rate of 7.2 percent. This part of the issue was priced at a spread of 280 basis points over RBI’s repo rate of 4.4 percent. This coupon rate will be reset if the benchmark repo rate changes.

Details on pricing and subscription are based on information provided by three debt capital market bankers, who spoke on the condition of anonymity.

According to two of the people quoted above, the fixed-rate tranche received 14 bids, while the floating rate tranche received seven bids. The third person quoted above said that the majority of the bonds were subscribed to by large banks, including State Bank of India, ICICI Bank, Axis Bank and HDFC Bank.

Responses to queries sent to RIL, SBI, ICICI Bank, HDFC Bank and Axis Bank on Thursday are awaited.

The NCD issue was received well by investors even though the bonds are unsecured and the money raised will primarily go towards refinancing its existing debt, said one of the bankers quoted above.

RIL had a net debt of Rs 1.53 lakh crore as of Dec. 31, 2019.

The company’s leverage is relatively high for its rating category as its net debt-to-Ebitda (earnings before interest, tax, depreciation and amortisation) ratio is expected to be about 2.1x for FY20, rating agency Crisil said in an April 6 report. However, the rating agency said the RIL’s leverage is expected to improve sharply over the next two years as it recently completed its large capital expenditure programme.

Primary Issues Pick Up

To be sure, RIL was not the only large company tapping the primary debt markets this week.

Other companies that concluded debt issues successfully on Thursday included NTPC, which raised Rs 4,374 crore for three years at 6.55 percent. Nabard raised Rs 2,500 crore for three years at 6.5 percent, according to information available on the BSE.

The central bank recently tightened the norms for use of funds raised by banks under the targeted long-term repo operations.

The RBI has said that funds raised must be deployed within 30 days. If not used in time, banks must pay an interest of 200 basis points over the repo rate for the period that the money remains uninvested. The funds are being offered by the RBI to banks at the policy repo rate of 4.4 percent.

Also Read: In Covid-19 Battle, RBI Must Stand Ready To Provide Artillery Support

To address concerns that most of the money would flow to a few companies, the RBI on Wednesday said that a bank can only invest up to 10 percent of the funds raised by it under the targeted liquidity operations in securities issued by a particular entity or group.

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