Reliance Petros $ 300 M Loan Oversubscribed By 233 Per Cent Twice

Reliance Petroleums $300-million project finance loan has been oversubscribed more than twice over, with subscriptions amounting to around $1 billion pouring in. The 10-year paper is priced on a stepped-up basis in a band of 2 per cent to 2.5 per cent over the London Inter-Bank Offer Rate (Libor).

A Reliance press note said the loan which was closed yesterday represents the largest project finance loan raised by an Indian company from the international bank market. It has been arranged by ABN Amro, Bank of America, Bankers Trust and Toronto Dominion.

Reliance Petroleum sought the loan to part-fund the construction of its 15 million tonnes per annum refinery at Jamnagar. The project, which is slated to have a capital cost of Rs 8,694 crore, will be the worlds largest single-stream grassroots refinery on completion.

Since Reliance Petroleum is a greenfield project, the company has yet to build up cash flow streams. Therefore, the loan has been raised on the strength of the project, rather than on the basis of the balance-sheet.

The loan was not guaranteed by either the government, banks or financial institutions. More than 25 banks from Europe, Japan, North America and Asia participated in the deal. However, the final allocations are expected to be scaled back substantially due to the large oversubscription.

Under the stepped-up formula, Reliance Petroleum will pay 2 per cent over Libor in the pre-construction period and a higher rate in the post-construction period. The loan carries a three-year moratorium on the principal amount.

Market sources point out that the overwhelming response to the issue underscores the fact that the Reliance group has become a recognised name in the international loan market.

The funding comes close on the heels of Reliance Industries Limited raising $405 million from the international markets last week. On July 22, RIL raised STERLING 150 million in 10-year debt from the sterling market. RIL has already raised 10, 12, 20, 30, 50, and 100-year bonds in the US debt markets. This has created a yield curve for Indian corporates planning to tap the US markets.