Reliance Industries IMAGE.
Reliance Industries Ltd (RIL) is never one to refuse a loan. Even when it is rolling in cash. This is why despite being a net zero-debt company, it continues to raise loans on favourable terms, the latest one being a perpetual dollar bond.
India's largest conglomerate has a cash pile of over Rs 75,000 crore, but it has used this to wangle a great deal from lenders to raise Rs 4,300 crore in long-term debt ( $800 million) through perpetual dollar bonds. The money will part-fund the Rs 1 lakh crore capital expenditure programme RIL announced last year. The programme includes expanding its petrochemicals business and ramping up oil and gas exploration.
The bond market abroad is awash with liquidity and rates are low. Little wonder that RIL is eager to lock in long-dated funding. Perpetual bonds don't have to be repaid, and at current low rates they can help bring down RIL's average debt costs. The company raised the capital at a coupon rate of 5.875 percent, making it the first issuance of perpetual bonds below six percent in the world. The only risk with dollar-denominated debt is adverse movements in the rupee-dollar rate, but then Reliance has a natural hedge since over 60 percent of its turnover comes from dollar-earning exports.
Perpetual bonds are instruments with no maturity date.This means it is up to the company discretion to redeem them anytime after five years. In order to compensate for the fact that investors can never redeem them, companies pay a higher rate than other bonds with a similar credit profile.
RIL will pay the interest on the bond to investors on an annual basis. Bond holders can always sell the bond in the secondary market when they need the money.
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