Mukesh Ambani, Chairman and Managing Director, Reliance Industries seen at an event. (Photo: PTI)

Cash Gives Reliance Room to Borrow as $13 Billion Matures

(Bloomberg) -- Reliance Industries Ltd. is making room to add as much as 200 billion rupees ($3 billion) to borrowings, using its cash buffer to manage rising funding costs and $13 billion of maturities over the next three years.

The billionaire Mukesh Ambani-led company will seek approval to issue redeemable non-convertible debentures at its July 5 shareholder meeting in Mumbai, it said in its latest annual report, without specifying how the money will be used. Reliance has total debt of about $33 billion, more than half of which is due for repayment by 2022, according to data compiled by Bloomberg.

Cash Gives Reliance Room to Borrow as $13 Billion Matures

The retail-to-refining conglomerate’s debt has tripled over five years as it invested $37 billion in a telecom venture and to bolster its traditional petrochemicals business. Its latest plan extends a strategy of raising cheaper debt, riding on its better-than-sovereign ratings, while also actively investing about $12 billion in reserves to generate returns.

The cash “helps them manage their debt-raising at the most optimal interest rates,” Vishal Kulkarni, a Singapore-based analyst at S&P Global Ratings, wrote in an email. “Historically the company has been able to keep their cash invested in financial assets that provided returns more than their costs of funding -- thereby avoiding any negative costs of carry.”

Cash Gives Reliance Room to Borrow as $13 Billion Matures

A spokesman for Reliance didn’t respond to an email and phone call seeking comment.

Reliance is rated BBB+ by S&P Global Ratings, two levels higher than the Indian government. Spreads on its 2025 bonds rose to 165 basis points over U.S. Treasuries on Monday, near the widest in more than a year, after touching an all-time low of 117 in November. The move is in line with other investment-grade Indian companies, which offered 170 basis points more on average, climbing from this year’s low of of 117 on Jan. 26, according to an index compiled by Bank of America Merrill Lynch.

Reliance shares declined 0.2 percent, its first fall this month, to close at 982.65 rupees on Monday. Shares have weakened in three of the past four months.

“Investors are concerned that despite the large cash flow generation from the core energy business, Reliance could announce further fresh capex and hence might not generate any free cash," Morgan Stanley analysts led by Mayank Maheshwari said in a June 10 report, adding that the brokerage’s view was that the refiner will probably “take a pause” before announcing major capital spending.

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