Reliance Plans To Float 100-Year Yankee Bond

The company had earlier this year concluded a 50-year Yankee bond for a sum of $100 million. The bonds, with the longest-ever maturity by an Indian sovereign or corporate body, had been priced at a yield of 10.6 per cent. The issue was sold through Merrill Lynch.

At present, China is the only other country to have successfully raised $50 million for a 100-year period; it was a sovereign borrowing by the Chinese government.

Ministry sources confirmed that they had received the application for an external commercial borrowing from Reliance Industries. They, however, indicated that the company was not likely to get clearance for the entire sum. In their view an international borrowing of such duration required that the sum be pegged at $100 million.

The bonds were offered in the Rule 144a private placement market to qualified institutional buyers (QIBs). The Yankee bonds were due for redemption on August 6, 2046, and included a put option which allows the shareholders to sell the debt back to the company at par on August 6, 2026. The issue was priced at a spread of 350 basis points above 10-year US treasury bill.

RIL had also been the first Indian company to obtain country-risk rating from global agencies like Moody's and Standard & Poor's.

The finance ministry had recently relaxed the cap for external commercial borrowings to $7.5 billion in view of the improved external sector outlook and the accumulated cushion on account of lapsing of past approvals. At the end of August the ministry had cleared 260 applications aggregating $3.3 billion. Another 143 applications for $2.5 billion were pending with the ministry.

Officials disclosed that there had been a paradigm shift in the nature of approvals in the current year. Compared with the previous average of 15 per cent of total borrowings, small companies with demand of less than $3 million now have a share of over 35 per cent. This also made the task of hedging against currency variations in the international markets that much easier, they said.

The finance ministry this week issued a brochure of the ECB guidelines to make matters transparent. It also contains the format in which the application has to be submitted.In the current financial year, clearance for external borrowings got delayed with the new government taking office only in June.

The only approvals prior to this were for small borrowers and the annual tranche for financial institutions -- aggregating $1.5 billion. However, the ministry has projected there would be a net external commercial borrowings of around $2.2-2.6 billion.