Cash-rich Reliance eyes $2.7 b in fresh Fx loans to refinance high cost debt

The cash-rich Reliance Industries, which also is one of the biggest forex loan borrowers in the country, is set to tap the foreign debt market to raise USD 2.7 billion to refinance its existing high cost debt. As of the June 2018 quarter, the Mukesh Ambani-led company had an outstanding debt of Rs 2,42,116 crore, which rose from Rs 2,18,763 crore from March 2018, while cash in hand marginally rose to Rs 79,492 crore. The company had spent around Rs 22,000 crore in capex during the quarter mostly into the still cash-burning telecom venture, and reported a net income of Rs 9,459 crore.

Its outstanding debt has been rising as its fledgling telecom business continues to drain cash. "We are planning to raise USD 2.7 billion in forex debt through the course of the fiscal 2019. The money will be raised in multiple tranches and will be used to refinance some of our existing high cost forex debt," a senior company official told PTI over the weekend refusing to reveal more information.

More than half of Reliances around USD 34 billion debt is due for repayment by 2022, while around USD 13 billion is maturing from 2018 through 2020. Most of the outstanding debt is denominated in foreign currencies. Reliance has sought shareholders approval to issue redeemable non-convertible debentures at its July 5 AGM, it said in its annual report. Due to the high rating at BBB+ (by S&P Global Ratings) which is two notches higher than the sovereign rating, Reliance can raise cheaper funds. Moodys has a Baa2 rating on the company, a notch above the governments rating.

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Reliance is the only private sector company in the country that has issued perpetual bonds to foreign investors a few years back. The only other domestic entity to tap the perpetual bond market is the state-run State Bank of India. According to investment bankers, Reliances repayments from 2018 through 2020 will be its biggest for any three-year period in the past and include about USD 8.14 billion term loans, USD 3.52 billion bonds and a USD 300 million revolver loan. It also has about USD 1.65 billion in interest payments.

In the June 2018 quarter its finance cost jumped more than threefold to Rs 3555 crore on an annualised basis. The retail-to-refining giant debt has trebled over the past five years as it invested a whopping USD 37 billion in a telecom venture and to bolster its traditional petrochemicals business which included a pet coke gasification unit and in expanding petrochemicals capacities. Telecom is still cash burning having sucked in around Rs 22,000 crore in the June quarter.

During the recent AGM, the billionaire owner Ambani, who is the richest Asian, said his vision for the group was to become a consumer company over the next decade. Already, 31 per cent of its revenue is coming from retail and telecom business as per its June quarter numbers. In the June quarter, Jio, was launched just two years ago, had reported a net income of Rs 612 crore, while the market leader Airtel had plunged into a whopping Rs 980 crore loss from its domestic operations. Jio with it loads of cheap data offering, entry has crippled the once-sun-shine telecom market.

The record net income in the June quarter was led by bumper earnings from retail business, improved profitability of telecom arm and near-doubling of earnings from petrochemical business offset lower margins from oil refining business. Consolidated net profit of Rs 9,459 crore was 17.9 per cent higher than Rs 8,021 crore that the oil-to-telecom conglomerate had netted and exclude a Rs 1,087 crore exceptional income from the sale of a stake in Gulf Africa Petroleum Corp. Revenue rose 56.5 per cent at Rs 1,41,699 crore thanks to the spike in oil prices.