It Is Definitely On A Roll

Ever since the mid-90s, there’s a certain Fortune 500 Indian company that always taps the cross-border bond market and raises bushels of dollars. At times, the amount raised in a single issue when expressed as a percentage will make for a substantial proportion of the weekly accretion to our foreign exchange reserves. It’s the Mumbai-based Reliance Industries (RIL). The petro-major’s $1 billion 10-year deal was billed as the Cross-border Bond Deal of the Year in the BW I-banking Survey 2016.

Why RIL?
The deal had many firsts to its credit. Not only was it the first Indian global bond offering of 2015, it also marked the re-entry of RIL into the G3 debt capital markets — or bonds issued in dollars (US), yen and euros — after July 2013. It was the lowest priced 10-year BBB-rated bond for $1 billion and more (excluding Japan) and was also the cheapest among RIL’s issuances.

What was RIL’s narrative to investors of the bonds? Says Alok Agarwal, chief financial officer at RIL: “The global size and scale of refining and the petrochem businesses. Proceeds are to be used for our capital expenditure”. The quality of the RIL offering helped it get an investment grade rating at above sovereign; and a target coupon below 4.25 per cent was achieved in financing.

Pressing on what made it particularly attractive for RIL to time the bond issuance at that point in time, Agarwal says: “The bonds were priced 240 basis points over the 10-year US treasury bonds at an yield of 4.1 per cent”. As to whether it would be correct to assume the rate was cheaper because US treasury yields had come off in the preceding months (to the deal) — with many investors having shifted to the safer option because of increase in risk perception globally — he points out “execution timing reflects lower coupon on US treasuries at that time as well as credit spread compression”. As to why RIL went in for a fixed rate, well, it’s simple: “A fixed rate is preferred by investors for this maturity”.

What’s creditable was that the transaction was put through well before the chatter of a rate hike in the US, the roil on China’s bourses and of the Eurozone getting into deep freeze made it to the headlines in a big way. But it also presented an opportunity — the fall in oil prices, worries over Eurozone stability and mixed cues on global growth saw US treasuries at historic lows.

In the case of RIL, the issue came just after its third quarter results for fiscal year 2015. More than 120 participants were on the Asia con-call. Says Agarwal: “The issue was very well received by investors and the books were subscribed several times”. The order-book totalled $4.5 billion from 272 accounts. If you go by allocation geographically, US was at 44 per cent, Asia at 31 per cent and Europe 25 per cent; by investor type, it was funds (62 per cent), institutions (18 per cent), banks (10 per cent), sovereigns (7 per cent) and private banks (3 per cent).

From the days (mid-90s) it floated a 50-year Yankee bond for $100 million followed by a 100-year issuance (technically perpetual equity), RIL has been a trend setter in cross-border bonds. By the way, RIL also floated a 750 million 30-year bond soon after its $1 billion mop up.

For a company which claims that growth is a way of life, the sheer audacity of it in these troubled times makes it bet worthy!