Reliance Floats 30-Yr Yankee Bond To Raise $214m

Reliance Industries Limited (RIL) has placed a new 30-year yankee bond in US markets valued at $214 million.

The new bond, RIL's second 30-year bond in 1996-97, comes with a put option in the year 2007, and will carry a fixed rate of interest of 8.25 per cent. The bonds are slated for redemption in 2027.

The new bond issue comes immediately after Reliance's 100-year bond issue concluded recently at an interest rate of 10.25 per cent.

With this, Reliance has raised a total of $314 million this month alone and $614 million so far in 1996-97.

Since August 1995, RIL's cumulative borrowing from the US markets under Rule 144A (where buyers are only qualified institutions) is estimated at $914 million.

 

The 30-year bonds have been rated `BB+' by Standard & Poor's, while the 100-year bonds were rated Baa3 by Moody's. Both issues were lead managed by Merrill Lynch and Morgan Stanley, the two US-based merchant bankers..

Reliance now has 10-year, 12-year, 20-year, 30-year, 50-year, and 100-year loans in its portfolio giving it the flexibility to manage its funds portfolio more effectively. Top finance sector sources in Mumbai said the 100-year bond issue has received overwhelming response from investors and has been subscribed many times over.

It is not known what the funds will be used for, but analysts speculate that Reliance could either use it to fund future mega-projects or retire high-cost debt. After the completion of its cracker complex in Hazira in Gujarat, Reliance will be spending close to Rs 4,000 crore on its new complex in Jamnagar.

There is also the new 3.5 lakh tonne PTA plant coming up at Hazira in 1997-98, announced last year.

This Jamnagar complex will produce 1.4 million tonnes of paraxylene and four lakh tonnes of polypropylene.

The funding plans for this project are not very clear. Reliance also needs funds to invest in group companies in power and telecom.

"Reliance just borrows money whenever it is available so it can use it for future contingencies. It will also give the company the flexibility to undertake rapid expansions whenever industry circumstances call for it," said an FII analyst who tracks Reliance.

"When the company is investing nearly Rs 3,000 crore every year, it cannot wait till the last minute to raise money. Reliance always borrows the money much in advance," explained another analyst.

Reliance notched up sales worth Rs 7.786 crore in 19995-96, operating profit of Rs 1,752 crore and net profit of Rs 1,305 crore.

It had total assets of Rs 15,038 crore. Its networth is put at Rs 8,405 crore while its total borrowings amount to Rs 4,721 crore.

Given its low debt-equity ratio of 0.6, Reliance can leverage itself further without any risk of a debt burden.