RIL To Raise $500 mn Via Perpetual Bonds

Reliance Industries Limited (RIL), India’s largest private sector company will be the third one in Asia to raise long-term debt fiscal by selling US dollar Denominated perpetual bonds as it intends to attract investors who are looking out for high returns in the gloomy market. The Mukesh Ambani led conglomerate aims to raise up to $500 million that equals to Rs. 2701 crore via these perpetual bonds from investors in foreign countries, for its expansion project.

According to an RIL official who did not wish to be named, informed PTI that the final amount will be determined based on the investor’s approach. However, they have set the initial price at six percent over the US treasury, which can be brought back after five years. Reliance Industries has been a key fundraiser from India in the foreign market. This is the fifth time in this fiscal that it is raising long-term debt wherein it has raised USD $ 4 billion from overseas. The company may have to invest close to $ 10 billion for its petrochemical expansion and varied oil and gas exploration activities. It may drill a development well in the satellite fields and will be devising an integrated field development plan (IFDP) in the next quarter. It seems the company will capitalize on the low interests in the market to reduce the cost of its debt. The official also claimed that this is the first time a domestic company is raising a long rated bond issuance.

Standard and Poor, rating company, have given a ‘BBB’ Long term issue rating to the bonds and in a statement mentioned that this manifests the company’s robust positioning and its varied business interests. Besides, the company benefits because of its low leverage, good cash inflows and liquidity. Apart from that, it is a good sign that the company is taking measures to resolve its issues and recently reported a profit of 24% in its Q3 profit. Its ‘Intermediate’ risk profile manifests its low debt. RIL, with its huge cash reserves, is poised to tackle any kind of difficult situations that can crop up, in unexpected situations.

Perpetual bonds are bonds that do not have a maturity date. While they are not redeemable, they ensure a continuous stream of interest, forever. The price of the perpetual bond is the fixed interest payment divided by a constant discount rate.