The debentures, with a face value of Rs 95 each and carrying a coupon of 12.5 per cent payable semi-annually, and is among the lowest rates contracted by Reliance among its long-term debenture offerings. The issue will be redeemed at par on July 31 this year. Under the terms of the issue, the debentures are redeemable on the expiry of 10 years since allotment, that is February 26, 2002. The company's board had the option to redeem it any time after February 26, 1999.

The benefits that will accrue to Reliance as a result is interest savings of 100 basis points annually, translating into Rs 3.5 crore, and servicing costs of Rs 3 crore. The debentures, placed with institutions, banks and corporates, also has over 6.5 lakh retail investors.

The move is part ofthe company's drive to take advantage of the easy liquidity scenario and bring down interest costs, which shot up in the 1998-99 fiscal due to a huge capex programme with domestic borrowings of Rs 2,177 crore during the year.

Along with the H series debentures, Reliance will also be redeeming another four debenture floats aggregating Rs 612 crore in 1999-2000, as reported by The Financial Express last week, making it the largest redemption programme by an Indian company in one financial year.

Reliance, following the commissioning of several plants at the Hazira complex, is expected to generate improved cash flows, with some analysts expecting a free cash flow in the region of Rs 1,400-1,500 crore.

The redemptions, apart from being financed through internal generation will also be met from the proceeds of a Rs 400 crore zero-coupon debenture issue by Reliance last month specifically to retire high-cost debt.

All the debenture floats that will come up for redemption during the fiscal were issuedin the first half of the decade when the company embarked on its mega capacity expansion plans at the Hazira petrochemicals complex.

The coupons on the five debenture offerings range between 12.5 per cent and 14 per cent with one offering of Rs 60 crore, of which only Rs 20 crore can be redeemed during the year, carrying the highest coupon of 18 per cent contracted by Reliance among all its existing debenture floats.

The move to redeem the debentures floats during the current fiscal follows similar measures taken by Reliance last year which included pre-payment of the high-interest institutional loans.

Its interest charges increased substantially in the 1999-2000 fiscal to Rs 728.81 crore from Rs 503.55 crore in the year before. The company has said that measures to optimise its interest costs will continue over the next few years.

Insight

RoCE will improve

At the time of its latest years annual results the RIL management had made it clear that the capex programme is through and thefocus would be on improving return on funds. By choosing to repay debt largely out of its free cash flow the company will achieve two things, one, reduce the balance sheet size and second, improve returns on capital employed.

The company generated Rs 1,746 crore of free cash in 1998-99. The stock has already been considerably re-rated partly on account of its focus on pushing up RoCE which has languished throughout the nineties. Last year the RoCE was just 11 per cent.