REC raises $500 million by issuing overseas bonds

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Updated: May 13, 2020 5:11 PM

On the targeted long term repo operations, he said a bulk of the help from RBI was cornered by the sovereign/quasi-sovereign entities and also the well-rated corporates, leaving little for the low rated ones.

The issue was oversubscribed and saw bids of USD 2.5 billion, Arun Saigal, head of debt capital markets for Barclays Bank in India, said, adding that the yield at which the money is being raised is 4.86 per cent.

State-owned REC on Wednesday said it has raised USD 500 million (around Rs 3,773 crore) through issuance of overseas bonds.

According to deal investors, this is the first ever overseas bond issue by an Indian company since the COVID-19 crisis.

REC said in a statement that the Notes (bonds) will mature on May 19, 2023 and all principal and interest payments will be made in US dollars. The settlement date for the Notes is expected to be May 19, 2020.

The issue was oversubscribed and saw bids of USD 2.5 billion, Arun Saigal, head of debt capital markets for Barclays Bank in India, said, adding that the yield at which the money is being raised is 4.86 per cent.

The company had embarked on the issue in February and the roadshows were also held immediately, but with the COVID-19 pandemic striking a heavy blow in March, it had to wait till Tuesday for the issue to be completed, he told reporters over a call.

Barclays, which claimed to be leading the tables for arrangers for the USD 7.5 billion of bond issuances by Indian companies since the beginning of the year, pitched for a relaxation in the External Commercial Borrowing guidelines to reflect the ground situation, saying such a change can help push up issuances by Indian entities.

At present, the guidelines cap the coupon payable at 4.50 per cent over the Libor rate, Saigal said, pointing out that the money raised by REC, a quasi-sovereign entity, was at the same level, which only makes it clear that it will be tougher for others to access the markets because of the pricing issues.

He said there are investors willing to invest in Indian paper, but that the guidelines need to reflect the new operating environment where investors may seek greater coupons for the heightened risks.

“We continue to see demand for Indian bonds, albeit at a higher price,” he said.

Also, there are caps on the end use of the funds raised wherein capital expenditure is mandated. However, in the new environment, there is a higher likelihood of the funds to be used for refinancing or other operational expenditure-related aspects, he said.

The bank’s head of debt origination in Asia Pacific region, Avinash Thakur, said India continues to be a geography of great interest because of its size and the growth prospects.

Saigal said he is confident that the Reserve Bank is looking into the matter and will be coming out with the changes soon to make it easier for more corporates to access the money.

Meanwhile, he said that there is a likelihood for the well rated and investment-grade companies which are not impacted by the COVID-19 crisis to go in for bond buybacks in order to save money by making use of the balance-sheet strengths.

Money markets will be needing help from Reserve Bank for stabilisation, like the announcement of open market operations, or direct buying of government bonds by the central bank or switches to digest the supply in the wake of the additional borrowing of over Rs 4 lakh crore announced by the Centre last week, he said.

On the targeted long term repo operations, he said a bulk of the help from RBI was cornered by the sovereign/quasi-sovereign entities and also the well-rated corporates, leaving little for the low rated ones.

The overseas bonds issued by REC represent direct, unconditional and unsecured obligations of the issuer and will rank pari passu among themselves and all other unsecured obligations of the issuer, the REC statement said.

The bonds will be listed on London Stock Exchange’s International Securities Market (ISM), Singapore Exchange (SGX-ST),  India International Exchange (India INX) and NSE IFSC.

The net proceeds from the sale of the Notes will be used for lending to the power sector.

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