Reliance Industries’ mega cost-cutting plan: Tapping cheap NCD funds to replace high-cost debt

By: |
April 14, 2020 1:27 PM

Mukesh Ambani’s Reliance Industries Ltd has decided to raise Rs 9,000 crore in non-convertible debentures to replace part of its high-cost rupee debt, taking advantage of the opportunity that has sprung up in the debt markets.

Mukesh Ambani Wealth, COVID-19, coronavirus impact on mukesh ambani wealth, COVID-19 impact on billionaires wealth, stock market, RIL, indian richRIL currently sits on a debt pile of Rs 1.54 lakh crore, despite being one of the most cash-rich companies in India.

Mukesh Ambani’s Reliance Industries Ltd has decided to raise Rs 9,000 crore in non-convertible debentures to replace part of its high-cost rupee debt, taking advantage of the opportunity that has sprung up in the debt markets. RIL seems to have taken cognizance of the cheap funds flowing into the debt markets, courtesy Reserve Bank of India’s (RBI) targeted long-term repo operations (LTRO). With this, RIL — the most cash-rich company in India — aims to refinance its high-cost rupee debt. Under RBI’s targeted LTRO, banks have been asked to invest 50% of the funds in commercial papers, corporate bonds and debentures with an aim to keep liquidity in the secondary market for debt.

RIL currently sits on a debt pile of Rs 1.54 lakh crore, despite being one of the most cash-rich companies in India. The proposed Rs 9,000 crore NCD issue, which enters the market on April 16, will help RIL repay existing rupee debt. According to a stock exchange filing, the issue will have two components — a Rs 4,500 crore fixed rate trance, along with another Rs 4,500 crore tranche with floating rate. Both the issues will offer a coupon of 7.2% to 4.4% of repo, with a spread of 2.8%.

The NCDs will be issued through a private placement, consisting of 30,000 unsecured redeemable fixed coupon, non-convertible debentures under the privately placed debentures (PPD) series K1. The face value of each NCD will be Rs 10 lakh, aggregating to Rs 3,000 crore along with an option to oversubscribe up to Rs 1,500 crore, summing up to Rs 4,500 crore. Under the floating interest rate tranche, offered by RIL, the company will issue 35,000 unsecured redeemable, non-convertible debentures under the PPD Series K2, having a face value of Rs 10 lakh each, aggregating in cash to Rs 3,500 crore with an option to retain oversubscription up to Rs 1,000 crore, aggregating to Rs 4,500 crore. The debentures are rated AAA/Stable by both Crisil and Care Ratings, and will hit the market on April 16. The issue will stay open for one day and will have a three-year tenor with annual coupon payout.

More and more companies have been pouncing on the opportunity to raise money through the corporate bond market. Nabard, HUDCO, HDFC, Powergrid and Larsen & Toubro too are expected to hit the corporate bond market. RIL’s plan to raise Rs 9,000 crore will see it get hands on nearly one tenth of the Rs 1 lakh crore liquidity the central bank has promised for the debt market through the targeted LTRO. Rs 75,000 have already been infused into the system by RBI.

According to the targeted LTRO announced on March 27, lenders get three-year funds at the repo rate of 4.40 per cent, but have to invest 50 per cent of the fund in corporate debt.  Targeted LTRO was announced by the central bank at lower yields, as a part of its effort to help borrowers deal with the severe impact of the coronavirus pandemic on the economy. The funds have been earmarked for both secondary markets and primary issues.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Equitas Small Finance Bank reduces IPO size from Rs 550 crore to Rs 280 crore
2Cotton purchase exceeds record 10 million bales
3Sensex rallies 835 points as banks, IT lead charge