Reliance $4 billion currency bond issuance - Good news for investors?
In June 2020, Reliance became net debt-free when it raised Rs 1,68,818 crore by a series of stake sale deals in its business and through the largest ever rights issue. In the last quarter, Reliance announced its plan to invest Rs 75,000 crore in green or renewable energy. It has raised $4 billion, the largest ever foreign currency bond issuance by any Indian company. Post the announcement, the share price is up by 1.25% on Friday morning.
Details of bond issuance
- Reliance opened a subscription of bonds of $4 billion. The issue was subscribed by three nearly times with peak order book aggregating $11.5 billion.
- The note issuance of US dollar bond was done in three tranches -
- $1.5 billion for 10 years at 2.875%
- $1.75 billion for 30 years at 3.625%
- $750 million for a 40-year term and a 3.750% coupon rate.
- The Notes have been priced at 120 basis points, 160 basis points, and 170 basis points over the respective US Treasuries benchmark.
- The issue received an order from over 200 different accounts from different regions in the United States, Europe, and Asia.
- The bonds have received the highest rating given to any Indian company for such bonds. Moody's had rated the bonds 'Baa2' and S&P Global Rating gave it ‘BBB+’. Both of these are STABLE outlooks on the bonds.
- The interest on the notes will be payable semi-annually in arrears. The Notes shall rank at par with other unsecured and unsubordinated obligations of Reliance.
Who received the currency bonds?
- The notes are distributed to high-quality fixed income accounts which consist of 2% to public institutions, 5% to banks, 24% to insurance companies, and 69% to fund managers.
- The company did not disclose the investors who subscribed to the bonds. However, as per market experts, the bidders included Hong Kong-based BFAM Opportunities Fund, China Life Insurance, Mizuho Bank, Fidelity, Singapore-based UOB Asset Management, among others.
How is it going to help Reliance?
- It will bring down its cost of funds even more and will make the repayment tenure longer.
- The company also plans to use the proceeds to retire existing borrowings.
Good for investors?
Investors who track the bond price know that the bonds issued by the Government of India for borrowing cost them between 6% and 7%. Investors may wonder - how Reliance is able to raise funds at much lower rates?
The bonds issued by the Government of India are in Indian currency, while Reliance has issued bonds in the dollar. It factors in the dollar becoming strong in the future (because of inflation) compared to the Indian rupee. In the long run, the net interest paid will be more or less than the same.
The oversubscription of the issue shows the confidence of big investors in the company. Secondly, the bonds are issued with 30 years and 40 years tenure. It tells the confidence of investors in the company and they see earning visibility for the next 40 years also.
Brokerage Target Price
ICICI Direct has a buy call on Reliance Industries. The target price given by the brokerage firm is Rs 2,960. The current market price of Reliance Industries is Rs 2,450.