(MENAFN- Khaleej Times) Billionaire Mukesh Ambani's Reliance Industries Ltd is almost doubling overseas debt this year to take advantage of record cost savings to rupee borrowings.
The spread between the three-month London interbank offered rate and the comparable rate on India's National Stock Exchange used for rupee loans was 1,133 basis points on Wednesday, or 11.33 percentage points, the widest in data compiled by Bloomberg going back to 1998. Reliance hired 19 banks to arrange $1.75 billion of funding in US and Singapore dollars, euros, and yen this week, people familiar with the matter said.
The gap between the fortunes of India's second-largest company by market value and its home country is widening as it adds to $1.85 billion of overseas debt in 2013, while overall foreign corporate borrowing slumped 89 per cent this quarter as the rupee plunged to a record. Reliance, which generates 63 per cent of its revenue abroad, needs to back Chairman Ambani's plans to spend Rs1.5 trillion ($22 billion) over the next three years to expand his energy to telecommunications empire.
"Reliance has significant overseas revenue in hard currency and that provides it with a natural hedge for foreign- currency borrowings," Atul Sodhi, Hong Kong-based managing director and global loan syndication head at Credit Agricole CIB, one of the arrangers, said in a telephone interview on Wednesday. "Even though the news flow from India is not great, Reliance is always in a position to set a benchmark, which will prove that the market has a strong appetite for their name."
Reliance, based in Mumbai, is offering to pay a so-called all-in rate including margins and fees of 170 basis points more than Libor for the five-year portion of its loan, rising to 186 basis points for the six-year part, the people said, asking not to be identified because the details are private. Tushar Pania, a Mumbai-based spokesman for Reliance Industries, didn't answer an e-mail seeking comment on the loan.
"It is a fantastic pricing for a deal of this size," said Sodhi, who is also the chairman of the Asia-Pacific Loan Market Association. "It is a very sensible and prudent strategy on the part of Reliance to approach the market on a regular basis so that investor appetite and relations are maintained."
The banks helping Reliance raise the funds are ANZ Banking Group Ltd, Bank of America Merrill Lynch, Barclays Plc, Bank of Tokyo-Mitsubishi UFJ, Bank of Nova Scotia, BNP Paribas SA, Citigroup Inc., Commonwealth Bank of Australia Ltd, Credit Agricole, DBS Bank Ltd, DNB ASA, HSBC Holdings Plc, Mizuho Bank Ltd., Royal Bank of Scotland, Standard Chartered Plc, State Bank of India, Sumitomo Mitsui Banking Corp, Westpac Banking Corp and United Overseas Bank Ltd.
Costs for dollar loans signed by companies in India averaged 325 basis points in June, according to data compiled by Bloomberg. They were an average 305 in July and August in the Asia-Pacific region outside of Japan, the data show.
By tapping offshore loans, Reliance is borrowing at 824 basis points, or 8.24 percentage points, lower than the rate in the domestic bond market, according to data compiled by Bloomberg.
The owner of the world's largest oil refining complex enjoys better pricing relative to its peers due to the company's high credit rating, Hemant Dharnidharka, Bangalore-based head of credit research at SJS Markets Ltd, said in a September 2 telephone interview. Standard & Poor's ranks Reliance's long-term foreign issuer credit at BBB+, two notches above India's BBB-, the lowest investment grade.
The rupee's 18 per cent depreciation against the dollar since April 1 has limited credit implications on most rated refiners as their foreign currency debt is offset by overseas earnings and pricing power, according to Fitch Ratings.
Fitch analysts Tahera Z. Kachwalla, Muralidharan R. and Buddhika Piyasena estimate that 92 per cent of Reliance's total debt in the year ended March 31 was in foreign currencies. Of this, about Rs324 billion of borrowings were hedged through interest-rate swaps, Rs33 billion via currency swaps, Rs23 billion using options and Rs 894 billion with the help of forward contracts, they wrote in an August 29 report.
Reliance had Rs930.7 billion of cash and equivalents in the quarter ended June 30 compared with total debt of Rs803.1 billion, according to the company's earnings statement.
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