Reliance Industries Raises $ 800 Million Through Its Perpetual Bonds
Filed Under: Business | Posted: 01/30/2013 at 5:05AM
Comments | Region: India
Reliance Industries Limited (RIL) has successfully raised $ 800 million via a perpetual bond sale at 5.875 per cent coupon from investors abroad. This marks the first issuance of perpetual bonds below six percent in the world. The MukeshAmbani led conglomerate had yesterday announced its decision to raise a minimum of $ 500 million to fund its expansion plans. The objective was to take advantage of the low interest rates in the market and raise long-term money.
Perpetual bonds are bonds without any maturity date and are hence, considered to be equity and not a debt. Since, there is no need to repay the original amount, it is deemed as an easy way to raise cheap capital.However, it is free to exercise its call option and has back at the end of five years if it discovers other options of financing. The bond holders will be able to sell their bonds in the secondary market. Another point to bear in mind is that it does not have any subordinate equity issue option.
A RIL official mentioned that the company moved away from the initial pricing guidance of 6 per cent and fixed the final pricing to 5.875 per cent in dollar terms. The company attains the feat of being the first company globally to raise funds through perpetual bond issue without any subordinate equity below 6 per cent.
Managing Director and Co- Head for Investment banking at Bank of Merrill Lynch in India, Asit Bhatia, mentioned that this bond sale by RIL would now encourage other Indian issuer to foray into the perpetual dollar- bond sale market. She also stated that it is extremely feasible for companies that perches on long term assets and firms that has considerable capital expenditure, distributed evenly for the forthcoming years.
This is the fifth time that the company is raising long-term debt this fiscal and has raised USD 4 billion from investors abroad in the current fiscal year.
The company received a ‘BBB’ rating from S &P, which manifests the company’s sound positioning and its versatility with respect to business domains.
The official also mentioned that this is the first time a domestic company has raised a long rated bond issuance. Apart from that, only five companies have raised funds through perpetual bonds globally and none of them has paid below 6% coupon. The company’s large reserves have served to be impetus making it easy for the buyers to confide in it.