Hardwood timber Synopsis
Reliance Industries has been granted permission by the Reserve Bank of India (RBI) to retain $2bn over its raised $3bn loan in the last fiscal year to use for working capital and expansions in energy and telecoms. The strong demand for the loan saw the company retain more than needed. Lenders from the UK, the US, India, South Korea, Taiwan and Mauritius were involved in the initial loan deal.ANIReliance Industries, the country’s biggest company by market value, has received the Reserve Bank of India’s (RBI) permission to retain $2 billion over and above the $3 billion it had raised last fiscal in what was the largest syndicated loan facility in years.
Central bank permission was sought because the amount collected was above the limits mandated by Mint Road, three people familiar with the loan said. Reliance plans to use the money to fund working capital needs and to expand its new energy and telecom businesses, industry executives aware of the plans said.
“Given Reliance’s strong credit rating and cash flows, banks across the globe wanted to participate in the loan exercise back in March. The strong demand for the loan after two rounds of syndication meant that there was still money on the table banks were willing to offer; so, the company decided to retain more than it needed,” said the first of the three people cited above. “This is not the first time RBI has given permission for such an increase. Reliance itself has sought special permission from the RBI before.”
Spokespersons at the banking regulator and Reliance did not respond to ET’s email queries on the subject.
In its March 13 edition, ET had reported that at least 10 more lenders will join the third leg of the syndication of $3 billion loans to Reliance and Reliance Jio Infocomm.
Approvals granted on case-by-case basis
This was billed as one of the most sought-after credit deals in India in recent times. That loan syndication was completed at the end of March, with more than three dozen banks participating.
“The company had approached the RBI to retain the $2 billion over and above the $3 billion it had sought to raise last fiscal. These approvals are granted on a case-by-case basis as the company has to make a sound business case to raise this kind of money,” said a second person aware of the transaction. “The approvals came earlier this month following which the company will draw down the extra amount later this month.”
Existing ceiling
To be sure, the central bank’s rules on External Commercial Borrowings (ECBs) cap individual exposure at $750 million per fiscal year. Beyond this limit, companies have to seek special permission from the RBI to raise money abroad.
The loan is a five-year ECB and is the largest through syndicated term loans by an Indian corporate house in at least five years. Banks from the UK, the US, India and countries such as South Korea, Taiwan and Mauritius were part of the syndication.
The loan proceeds were earmarked to fund Reliance Industries’ capital expenditure and the 5G expansion of Jio, ET had reported in its October 10, 2022 edition. The loans have been priced at 150 basis points, or 1.5 percentage points, above the Secured Overnight Financing Rate (SOFR), for Reliance. The spread is a little wider – at 158 basis points – for Jio, said the third person aware of the transaction.
SOFR is the latest global rate gauge used in the pricing of debt offerings.
Even as it completes the draw-down of this loan initiated last fiscal, the oil-to-telecom conglomerate is also looking to raise a fresh loan of $2 billion.
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