Blockbuster producer
Indian blue chip Reliance Industries balanced onshore and offshore funding to achieve optimal pricing results from supersized deals. In a tumultuous year for debt markets, it found increased demand from lenders as it reshaped its business to seize future opportunities.
Reliance Industries has been one of India’s standout corporate issuers for decades, but in recent years it has changed the profiles of both its business and its borrowing, and that showed in the success it had with jumbo issues in 2023.
Mukesh Ambani’s blue chip has stronger credit fundamentals than the Indian sovereign itself, and this continued financial strength comes even as RIL has reinvented itself.
The oil and gas business that was once its core is changing to reflect the push towards reducing carbon emissions and enabling India to meet its target of net zero emissions by 2060. RIL has moved to diversify itself and put an increased focus on consumer, digital and renewable business lines.
The group’s motto, “growth is life”, has been reflected in its pursuit of new markets with more potential for expansion.
RIL’s telco unit launched its consumer mobile business in 2016 and quickly became the market leader, while its retail business has delivered strong growth after partnering with overseas industry leaders. Reliance Retail saw more than one billion transactions in FY23, delivering 44.7% Ebitda growth year on year.
“We have diversified significantly in the past few years, and now almost 50% of our earnings come from our consumer businesses,” said Vineyesh Sawhney, head of financial resources at RIL. “We have dramatically changed our profile in the last few years with the building of the digital and the retail businesses both of which have immense potential for continued high rates of growth. We want to be able to provide almost everything a consumer wants through our retail business including its joint ventures. You can call Reliance a proxy for India’s consumption story.”
That growth has required plenty of funding, and 2023 was not an easy year to raise financing. High US dollar rates had finally fed through to Asia’s offshore loan market, causing the primary market to freeze up, while corporate governance concerns at some other Indian corporates had an impact on investor sentiment. Meanwhile, the US dollar bond market was volatile and the cost of funding was far higher than onshore.
Despite this challenging backdrop, the Reliance group had no trouble attracting lenders. RIL and Reliance Jio Infocomm both raised US$1.5bn-equivalent from syndicated loans across US dollar and Japanese yen tranches in January with an arranger group of 15 banks. After attracting 40 banks in syndication, the borrowings were upsized by US$1bn each.
The final tally of 55 lenders was the largest lending group in Asia Pacific since 2000 and made it the most widely syndicated Indian deal. Strong participation was seen from Taiwanese lenders, as well as institutions from Japan, Europe, the Middle East, South Korea, the US and even China, which has not enjoyed the warmest of relations with India in recent years.
RJIL’s loan was its first syndication without a guarantee from RIL, following the sale in 2020 of shares in its parent company Reliance Jio Platforms to investors including Google and Facebook. Despite the mixed ownership it still priced close to RIL.
“Prior to the stake sale in Jio, every offshore long-term borrowing of Jio was backed by a RIL guarantee,” said Sawhney. “It has now transitioned to borrowing on the strength of its standalone financials. It is important to note that the pricing difference between RIL and Jio on the syndicated loans was only 10bp. This syndication was the coming of age for Jio in the international financial markets.”
In June, RIL signed a US$2.45bn refinancing comprising a US$2.105bn US dollar 4.25-year tranche and a ¥49.682bn (US$351m) 5.25-year tranche. As well as finding demand from a diverse group of 34 lenders, Reliance also managed to reduce its all-in cost.
When India raised the withholding tax on external commercial borrowings to as much as 20% in July, having held it at a lower rate of 5% since 2012, borrowers faced a choice between absorbing the higher cost or thinking of alternatives.
By funding in yen, RIL has been able to diversify its liquidity pool, while the lower coupon payments meant there was less impact from the increased withholding tax. Swapping yen proceeds into euros also gave a slight saving compared to US dollars.
India’s biggest corporates need to balance their mix of debt funding, since the Reserve Bank of India introduced rules in 2016 limiting the amount of exposure lenders can have to big corporate groups. That means corporates now need to raise more of their debt from the bond market or from offshore loans. RIL has viewed that as an opportunity to reach the widest sources of capital and find cost-effective ways of raising debt in each market.
“We maintain a balance between bonds, loans and ECA financing,” said Sawhney. “We have always focused on doing the optimal deal in terms of size, tenor and pricing while increasing our access across markets and currencies. We don’t rest on our laurels, and endeavour to do something innovative every time.”
RIL showed other issuers what was possible in the domestic bond market, reflecting a trend for Asian issuers to raise debt in local currencies as costs rose in US dollars.
While the rupee market has not always been known for its depth, Reliance managed to print a Rs200bn (US$2.4bn) 10-year bond in November. The issue, India’s largest by a non-financial corporate, was significantly oversubscribed and drew demand from insurers, pension funds, mutual funds and non-bank lenders.
The 7.79% note achieved RIL’s lowest coupon and tightest spread for a rupee bond, landing just 40bp over the Indian government 10-year security. It even priced tighter than some Indian state bonds.
The group also obtained export credit agency finance totalling more than US$5bn.
RJIL took the bulk of that, with borrowings comprising US$1.35bn and €745m (US$814m) facilities backed by Sweden’s EKN to finance purchases from Ericsson; US$700m and €798m facilities backed by Finland’s Finnvera and US$600m from Export Development Canada, both to fund purchases from Nokia.
Export-Import Bank of Korea provided 100% cover for a US$625m-equivalent facility to support RIL’s purchase of a floating production, storage and offloading vessel for its oil and gas business, with six banks participating across US dollar and yen tranches.
This continued market access has happened even as the group continues to reorganise and reshuffle units to best position itself for future growth.
Reliance Retail borrowed around US$2bn-equivalent in rupee loans from 10 Indian banks during the year. It has also transferred assets worth US$620m to a warehouse infrastructure trust through a private placement.
In addition, RIL spun off Jio Financial Services as a separate listed entity after agreeing to form an asset management joint venture with BlackRock.
That raises the prospect of more Reliance units becoming regular capital markets issuers in future.
“We wanted to go out and make a statement that we are still Reliance but improved,” said Sawhney. “We are a more profitable Reliance that can grow for years to come.”
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