With China roiling global markets and a US rate hike on the cards, one expanding Asian group had to tread carefully to complete funding for its biggest capital spending programme. For its impressive read across financing markets, Reliance Industries is IFR Asia’s Issuer of the Year.
India’s biggest private sector company had much to think about in 2015. Reliance Industries was part of the way through financing an ambitious capital expenditure programme, at a time when interest rates, India’s economy and energy prices were all adding to uncertainty for investors.
In a volatile year, Reliance raised US$7.9bn of financing and completed funding for its capital commitments on its two major projects – the expansion of its Jamnagar oil refinery and the buildout of the Reliance Jio Infocomm mobile network.
It stretched the average maturity on its debt to beyond eight years, up from under four in 2012, built relationships with new investors and locked in low interest rates, taking the conscious decision to transform its balance sheet before any increase in US rates.
“We are very, very pleased with what we achieved under our objectives, and especially with what we have done this year in the bond market,” said Vineyesh Sawhney, vice president, finance. “We tied up the entire financing for these projects in a way that it de-risks project execution from a financing perspective.”
Reliance’s finance team was busy throughout the year and in multiple markets, but it showed an uncanny knack of picking the right format at the right time. It accelerated its global bond issues early in the year, took advantage of a window in Taiwan in May, and dodged the political debate over the future of the US Export-Import Bank with a guaranteed bond in August.
The company also pushed the boundaries in the more stable commercial and export credit loan markets, signing US$1.47bn of commercial debt at longer maturities and lower margins and sealing US$1.55bn of long-term, agency-backed loans.
“When we set out on this massive fundraising three years back we said we wanted to do it in a way that will change the composition of the debt that we have on our books. We wanted to create a mix between bonds, loans and ECAs so there is no single dependence on one product. That was very strategic,” said Sawhney.
“We also recognised that global interest rates for long-term issuances were at all-time lows, and there was a limited window created by the government of India for overseas issuance of bonds at a lower rate of withholding tax. … We felt that there would be no better opportunity for us to extend the maturity of our debt very significantly.”
Global reach
The two global bonds were especially impressive. The first, a 10-year US$1bn trade in January, reopened the market for the oil sector at a minimal new issue premium.
That was despite a recent slump in crude prices that turned investors cool on energy credits and the general wariness of investors towards long tenors ahead of an anticipated US rate hike. The bond benefited from US investors’ underweight positions towards India, as they took the lion’s share of 44% – a far cry from several other 144A offerings from Asia during the year. The healthy US bid meant Reliance offered only around a 5bp concession to fair value and locked in the lowest coupon for a 10-year Triple B rated corporate deal of US$1bn or more from Asia (ex-Japan).
Spotting an opportunity, it pounced again a mere two weeks later to print a US$750m 30-year, becoming the first Indian company to print at that tenor and securing the lowest yield for any Asian private sector issuer at 30 years. The deal played to the appetite of insurers and pension funds, which saw value based on the spread over the 10-year, and took advantage of a window of improved market conditions.
Reliance broke new ground again in May, when it headed to Taiwan to tap dollar liquidity there. Its US$200m 20-year callable Formosa was the first offering in that market by an Indian issuer, and helped to diversify its investor base.
In August, it was back with a US$225m January 2026 issue guaranteed by the Export-Import Bank of the US, enabling the company to repay part of a floating-rate loan it had received from US Exim to fund capex at its Jamnagar refinery. As with its other issues, it helped to balance Reliance’s composition of funding by using the bond market where in the past it might have taken loans.
“Accelerating to the first half of this year in the bond markets was a very conscious decision, (as was) to get the Exim bond out in two weeks from start to finish,” said Sawhney. “I think it was the right call.”
Loan following
Reliance has built a wide following among Asian lenders over the years with a string of popular syndicated loans and it added to those credentials again in 2015.
The US$1.47bn dual-tranche loan sealed in September achieved widespread participation from lenders across the world while slashing its cost of borrowing significantly. The loan paid a top level all-in pricing of 112bp based on a margin of 84.5bp over Libor and included a Japanese currency portion at 82bp all-in, based on a margin of 57.5bp over yen Libor.
While Reliance already enjoys strong relationships with the Big Three banks in Japan, the small ¥9.76bn (US$81m) yen tranche cultivated new investors, attracting eight other lenders from Japan and introducing Indian credit to many regional banks for the first time.
The 2015 refinancing also slashed its funding costs, replacing a September 2012 vintage dual-tranche facility that paid top level
all-ins of 245bp and 265bp for US dollars and 175bp and 195bp for yen.
“Our ability to push markets, to create new sources of liquidity that will be sustainable for our companies across Asia is important. In that respect our US$1.5bn loan also stands out,” said Sawhney.
The success of that loan followed a landmark export credit agency-backed financing in May for telecom subsidiary Reliance Jio Infocomm, which signed a US$750m borrowing with backing from Korea Trade Insurance Corp (K-sure). The loan was K-sure’s largest loan in India, its first for a long-term telecom infrastructure project and its first with the Reliance group.
At 12 years the maturity of the deal was the longest among all ECA-backed loans completed in the last decade for a telecom sector borrower globally. It matched the tenor on Reliance Jio’s US$750m facility in September 2014 with backing from the Export-Import Bank of Korea, but achieved a lower premium for the insurance cover.
During the review period Reliance Industries also brought the concept of market-driven repricing to the ECA-backed market, becoming the first borrower to push down the margin on a facility from the UK’s Export Credits Guarantee Department in April. It followed it up in July with the first repricing of another loan with insurance cover from Export Development Canada.
While any repricing requires delicate negotiation, Reliance needed to avoid any pre-payment that would nullify its ECA cover. It managed to do so, transferring the facility from existing lenders and reducing the pricing on the same day.
Reliance may have won attractive terms on its financings during the year, but it has done so in a responsible manner, pushing markets as far as they would go but resisting the urge to squeeze too far.
“For us, continuity, scalability, and access to markets are extremely important,” said Sawhney.
“We don’t want to take the last dollar out of the market.”
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