This is the first time that an Indian corporate house has sought such a blanket permission from institutions. As per existing norms, all companies have to take case-by-case approvals from institutions for raising funds both from the domestic as well as international markets.

The matter will be discussed by the institutions at a meeting to be held in Mumbai next week.

A note prepared by ICICI ahead of an inter-institutional meeting says that it has received a request from RIL seeking exemption from these norms as the company wants to take advantage of market movements and act expeditiously to obtain better terms for financing. The RIL request also says such permission should be given till such time that the credit rating of a company as perCrisil is at or above AA for its long-term borrowings.

The ICICI note has supported the company's argument. The note says that "institutions may agree to the company's request" as RIL's credit rating as per Crisil is AAA and the payment record has been maintained at A1 for the last 25 years. Besides, RIL has sound financials and has been following prudent norms regarding its finances. Analysts, however, expressed surprise over ICICI's stand and said as per international practice, even highly-rated corporates have to take prior approval of financial institutions for borrowings. Institutions all over the world want to know the end-use of such funds raised, they said.

The ICICI note, however, says that asking RIL to take permission from the financial institutions every time its raises funds is irrelevant as the company, in its endeavour to reduce its cost of capital, has been raising funds from the market frequently to avail itself of changing interest rates. The company has a very low cost of capital as ithas raised equity with large premia and low-cost foreign debt. RIL also has low-cost operations as it has put up captive utilities at all its sites.

"All these enable the company to be cost competitive internationally and we believe it can export successfully to competitive markets", the note says.To press its point further, ICICI has said in its note that RIL has over the years built up a strong investor base -- both retail as well as institutional.

In 1992, RIL entered the international capital market and was the first Indian company to do so. Since then it has increasingly focused on raising funds from the international market with an objective of raising funds at international costs and thus lowering its overall financing cost.

INSIGHT:

FIs should give permission

Reliance has an excellent track record as far as its borrowings are concerned. The company is a frequent visitor to the markets and borrows not merely for its investment requirements but also to take advantage of lowerprevailing rates thereby keeping its overall cost of finances low. Taking permission from FIs every time merely results in unnecessary delays. As long as the FIs are confident of the company's financial prudence, there is little harm in giving it a blanket permission to borrow as and when it needs to, provided they monitor the company's staying within prudent debt-equity norms.

-- Sarad Saraf