Reliance bonds yield less than Mattel on gas hunt

In selling 30-year bonds at yields lower than US companies with comparable debt ratings, Reliance Industries Ltd (RIL) shows how investor perceptions of India’s corporations have turned around in two years.

RIL, India’s biggest company in terms of market value, sold 6.25 per cent 2040 bonds at 240 basis points (bps) more than US treasuries last week. Mattel Inc, which has the same rating as Reliance and is the world’s largest toymaker, priced $250 million of 6.2 per cent bonds due October 2040 last month at an extra yield of 250 bps.

The average spread for Indian dollar corporate bonds has dropped to 359 bps from as high as 2,036 in 2008 during the global financial crisis, HSBC Holdings Plc indices show.

RIL Chairman Mukesh Ambani is being offered a discount by investors who are confident the company will find demand for its energy resources in Asia’s second-fastest-growing major economy. While nations from Brazil to Thailand impose taxes to control investment inflows, in September, India raised its limit for foreigners buying rupee bonds.

“In a relatively short time, Indian companies are becoming highly globalized,” said Seth Freeman, CEO of San Francisco-based EM Capital Management LLC, which focuses on emerging markets, including India and Pakistan. “For a whole basket of reasons besides the rate Reliance is getting, companies may look at dollar debt.”

Indian international bond sales have climbed to $6 billion this year from $1.79 billion in all of last year.

‘Critical’ industry
Ambani, who already owns India’s largest natural gas field, has shown he’s ready to make overseas acquisitions to create a global energy group. The company has spent $3.4 billion since April to buy shale gas assets in the US after failing to purchase LyondellBasell Industries AF in a deal that would have valued the Rotterdam, Netherlands-based chemicals maker at $14.5 billion, and losing a bid for oil sands assets in Canada.

Reliance plans to spend at least $8.4 billion over the next decade in two shale gas ventures in the US, according to a presentation made to investors in July. The company, which also sold dollar bonds in 1997 and 2007, raised $1.5 billion in India’s biggest-ever corporate bond sale.

The demand was “a function of having a track record in the market and being such a large company, and probably because they are in a critical industry where it is easy to understand they are going to grow,” said EM Capital’s Freeman.

Moody’s Investors Service rates both RIL and El Segundo, the California-based Mattel Baa2, the second-lowest investment grade, and Standard & Poor’s ranks their debt BBB.