Ambani’s $41-bn push spurs RIL bonds to record

June 13: As Reliance Industries nears completion of its $41-billion spending spree on everything from new petrochemical projects to getting its fourth-generationwirelessservices running, optimism the investments will soon start contributing to revenue has driven the yield on its perpetual dollar bonds to a record low.

S&PGlobalRatingssaysthe capital expenditure by the operator of the world’s biggest refining complex will help reduce leverage and increase earnings over the next three years. It will also mitigate the threat to margins from 2016’s rebound in oil prices, that follows an extended period when refiners including Reliance benefitedfromdecliningBrent crude.

“Reliance is so diversified and so much money could be made in the downstream business, there is no real risk for us and that is why we are long the bond,” said Martin K Wilhelm, founder of money manager Ifk GmbH, which owns Reliance’s perpetual notes. “It’s a solid gameandforthebondinvestor, there is no risk at all.”

The yield on the firm’s perpetual dollar bonds issued in 2013 has declined for three straight months, falling 48 basis points since end-February to5.76%onFriday,accordingto datacompiledbyBloomberg.It was little changed on Monday. That compares with 9.14% on similar-maturity debt of Philippines’ Petron Corp., the only other Asian refiner with perpetual notes. The yield on Reliance’s securities due in 2025 has fallen to 3.83% from as high as 4.55% in January.

Much of Reliance’s capital expenditure of $41 billion is for new projects. India’s secondlargestcompanybymarketvalue had an investment of over R1.5 lakh crore ($22.3 billion) in its telecom venture Reliance Jio Infocomm, Ambani said at the end of March.

The unit is expected to start services this year.

Reliance Industries, which also operates stores that sell fruits and clothes, is investing to expand its petrochemicals capacity and reduce energy and feedstock costs to boost profitability. Bloomberg