Reliance, Adani, REC issue $1.7-bn bonds

Moody’s upgrade to help firms lower interest costs: Experts

Reliance Industries, Adani Abbot Point Terminal, and Rural Electrification Corporation (REC) on Monday launched bond issues overseas worth $1.7 billion in order to reduce their finance costs.

The bond issues follow last week’s upgrade by Moody’s of India’s sovereign rating from the lowest investment grade Baa3 to a notch higher at Baa2.

The agency has also upgraded the ratings of several public sector companies such as State Bank of India, Indian Oil Corporation, Oil and Natural Gas Corporation, and NTPC as well as those of private sector lender HDFC Bank.

A market expert said the Moody’s upgrade was likely to result in finer rates in bond issues. Several Indian companies with strong credit ratings are planning to retire their costly loans and are expecting interest rates at least 100 basis points lower. While Reliance Industries is expected to raise close to $800 million, the Adani group’s coal terminal company in Australia is raising $500 million. REC will raise close to $400 million.

A Bloomberg report said late Monday evening that RIL raised $800 million at 130 basis points above US treasury for its 10-year bonds. The rates are exactly half than what it raised last time and a tad below ONGC Videsh.

“Companies with good ratings will slash their interest costs significantly. The risk premium to Indian bonds is at its lowest, which is encouraging well-rated companies to raise funds abroad,” said a banker.

Reliance Industries could raise money at rates as low as the London Interbank Offered Rate (Libor) plus 25 basis points. Rates for other Indian companies would also be competitive, the banker said.

Reliance Industries has just completed a major investment plan, which included the launch of wireless telephony services at an investment of ~2,00,000 crore. It has also invested in expanding the capacity of its petrochemicals business. The company has raised debt overseas in several tranches.

The 10-year Reliance Industries bond, which opened on Monday, would retire old loans and help lower finance costs, said a banker. A Reliance Industries spokesperson declined to comment on the development.

Bankers said raising of funds by Indian companies overseas had declined by almost 40 per cent because very few of them were planning to set up new businesses or expand existing ones.

“The Moody’s upgrade has come at the right time. One can expect a recovery in fund-raising by Indian companies in the coming quarters as interest rates in the local market remain high,” said the chief financial officer of a large company.

Adani Abbot Point Terminal, which operates a coal terminal in Australia and has net debts of $2.04 billion, will raise its first dollar-denominated debt and this will be used to repay the old loans.

The terminal, which runs at an average capacity of 50 per cent, faces $1.11 billion refinancing by November 2017 and cumulative debt refinancing of $2.11 billion by 2020. The first payment of $64 million was due to to the State Bank of India in September.

The Adani group is investing close to $10 billion in the Carmichael coal mine and plans to use the Abbot Point terminal to export coal from the Australian hinterland to its customers in Asia.

Among other companies, Hindustan Petroleum Corporation Ltd (HPCL) is planning to tap the overseas markets and is expected to bring down its cost of funds by 40 basis points following the upgrade by Moody’s. On Friday, Moody's upgraded the ratings of HPCL, Bharat Petroleum Corporation Ltd (BPCL) and Petronet LNG.