LIC to pick up ADAG's non-convertible bonds

Life Insurance Corporation of India (LIC), the country's largest financial institution, will subscribe to non-convertible debentures (NCDs) worth Rs 3,000 crore to be issued by the Anil Dhirubhai Ambani Group (ADAG) companies.

NCDs are structured debt products, which cannot be converted into equity of the issuing company but which carry a higher rate of interest than convertible debentures. The face value can be redeemed in one instalment, referred to as a bullet payment, or in tranches. The redemption period can stretch up to 10 years. Against an annualised return of 10 to 11 per cent last year, the instruments now offer up to 12.5 per cent.

While LIC sources refused to specify the companies, the public sector insurer, which has so far subscribed to NCDs worth over Rs 25,000 crore, has sought collateral by way of securities and other assets. Typically, in case of NCDs, the value of the collaterals is two to five times the amount subscribed.

The deal could be sealed by early next week, sources familiar with the developments said. One of the key criterias LIC insists on is that the company should have a minimum ‘AA’ rating from one of the four approved credit rating agencies in the country. The sources said the company will have to decide whether it wants to take the whole amount in one tranche or in several tranches.

ADAG group companies — Reliance Power and Reliance Infratel — have been looking to raise huge capital. Reliance Power is in talks with several banks to ensure financial closure of the Sasan ultra-mega power plant. The company was in talks with several banks to ensure the financial closure of the 3,960 mega watt project. So far, it has tied up around Rs 12,000 crore for the Rs 20,000 crore project and is looking to raise another Rs 2,500 crore this month.

Similarly, Reliance Infratel, the infrastructure arm of Reliance Communications, is also looking for funds after it deferred its initial public offer.

LIC has earmarked an investment corpus of over Rs 1,50,000 crore for the current financial year, and if things go as per plan, Rs 35,000-40,000 crore will flow into NCDs, commercial paper and certificate of deposits.

The country’s largest life insurer has been inundated with applications from companies, including heavyweights such as Reliance, as the deepening credit crisis forces India Inc to look for new sources of funds. Many companies are issuing NCDs largely to meet their working capital requirements as well as long-term capital expenditure plans. Last year, external commercial borrowing (ECB) was a favourite fund-raising route, but companies have not tapped this route of late due to the ongoing financial turmoil.