Reliance Industries is raising up to $500 million (Rs 2,701 crore) through perpetual bonds from investors abroad to fund its petrochemical expansion and oil and gas exploration activities in India. Reliance is expected to price the bonds at six per cent, which can be bought back by the company after five years.
Reliance is one of the top fund raisers from India in the foreign markets for expansion projects. The company has planned expansion of its petrochemicals complex, which will cost it close to $10 billion. In CY12, Reliance was one of corporate India's biggest fund raisers abroad, by raising close to $4 billion till date. Perpetual bonds do not have any maturity date.
The company is sitting on a cash pile of Rs 75,000 crore and is using the low interest rates in the markets to cut costs of its debt, a banker advising Reliance said. The banker said if the response is good, the company may look at the option of increasing the size of the bond issue. Soon after its third quarter results, Reliance said that it expected KGD6 gas volumes to weaken till FY15, pending completion of booster compressors at D1-D3 fields. Reliance is drilling a development well in the satellite fields and plans to file an integrated field development plan (IFDP) in the current quarter. When developed, IFDP will drive new volumes after FY16. Meanwhile, Standard & Poor’s (S&P) ratings services assigned its 'BBB' long-term issue rating to Reliance’s proposed US-dollar-denominated senior unsecured perpetual notes.
"The rating on Reliance reflects the company's strong competitive position and good business diversity,” Standard & Poor’s said in a statement.
In addition, the company has low leverage, and strong cash flows and liquidity
S&P added that there were factors that could temper these strengths. Reliance’s vulnerability to the cyclical nature of its industries and commodity prices, exposure to country risks in India, falling production at Krishna Godavari basin, and the company’s aggressive growth strategy were some.
“The company’s satisfactory’ business risk profile reflects the company's competitive strength, which we attribute to its large scale and integrated and efficient oil refining and petrochemicals operations,” the statement added.
Reliance’s intermediate’ financial risk profile reflects the company’s low debt. “We expect Reliance’s ratio of debt to Ebitda (earnings before interest, taxes, depreciation, and amortisation) to be below 1.2x for the next two years. We have adjusted the debt for cash and cash equivalents exceeding Rs 75 billion (Rs 7,500 crore). Nevertheless, the company’s use of its high cash holdings of more than $14 billion will highly influence its financial metrics,” S&P said.
According to the rating agency, the positive rating outlook on Reliance reflects its view that the company has a large cash surplus to protect its financial strength against any potential deterioration in operating conditions.