1 day ago
Reliance Raises Rs 25,000 Crore in September Bond Issues
Reliance Industries borrowed Rs 25,000 crore by selling bonds in September.
Bonds are a way for companies to borrow money from investors.
Its newest borrowing was for 10 years and carried a 7.90% interest rate.
Many investors wanted to buy these bonds, offering more than Rs 15,000 crore in total bids.
Reliance also raised Rs 12,000 crore through a five-year bond issue earlier in the month.
Borrowing costs may rise because markets expect the Reserve Bank of India could increase interest rates.
Higher crude oil prices, a weaker rupee, and higher global bond yields are also putting pressure on the bond market.
By borrowing now, Reliance gets certainty about its funding costs.
However, it could miss cheaper borrowing later if interest rates and bond yields fall.
Reliance Industries raised Rs 25,000 crore through domestic bonds in September.
Its latest issue raised Rs 13,000 crore through 10-year bonds at a 7.90% coupon rate.
The issue attracted more than Rs 15,000 crore in bids from 80 qualified institutional buyers and one non-QIB participant.
The fundraising included Rs 3,500 crore from anchor investors and Rs 9,500 crore from the non-anchor portion.
The borrowing is Reliance’s largest monthly domestic bond-market fundraising, amid expectations of higher borrowing costs.
- Who
- Reliance Industries Ltd. raised the funds, with investment from institutional investors including mutual funds, insurance companies, and pension funds.
- What
- The company raised Rs 25,000 crore through domestic bond issues, including Rs 13,000 crore in 10-year bonds.
- Where
- India’s domestic bond market.
- When
- During September, with the latest 10-year issue conducted during the month.
- Why
- To secure long-term funding amid expectations of a possible Reserve Bank of India rate hike and rising borrowing costs.
Lock In Funding Now
Wait for Potentially Lower Yields
Timing the borrowing
Lock In Funding Now
Securing 10-year funds at 7.90% gives Reliance funding certainty and protects it if borrowing costs rise further.
Wait for Potentially Lower Yields
If crude oil prices, geopolitical tensions, or inflationary pressures ease, bond yields could fall and allow Reliance to borrow more cheaply later.
Cost trade-off
Lock In Funding Now
The transaction can be viewed as a hedge against higher future funding costs rather than a bet that interest rates will rise.
Wait for Potentially Lower Yields
Locking in funds now creates an opportunity cost if yields decline sharply, because the company would not capture the lowest possible borrowing cost.
Key facts
- Total September fundraising
- Rs 25,000 crore
- Latest bond issue
- Rs 13,000 crore in 10-year bonds
- Latest coupon rate
- 7.90%
- Latest issue demand
- More than Rs 15,000 crore in bids
- Anchor allocation
- Rs 3,500 crore subscribed by 16 investors
- Earlier September issue
- Rs 12,000 crore in five-year bonds at a 7.47% coupon
- Previous monthly record
- Rs 20,000 crore raised through 10-year NCDs in November 2023
Quotes
Venkatakrishnan Srinivasan
Founder and managing partner of Rockfort Fincap LLP
“Reliance Industries' decision to raise Rs 13,000 crore through a 10-year bond at 7.90 per cent, despite the market increasingly expecting an RBI rate hike, is essentially a decision to prioritise funding certainty over trying to time the interest-rate cycle”
rediff.com
A market participant
An unnamed participant commenting on Reliance Industries’ bond strategy
“The Reliance transaction, therefore, looks less like a bet on higher interest rates and more like a hedge against the risk of funding costs moving higher further. If yields subsequently fall sharply, Reliance may not have captured the lowest possible borrowing cost. But if yields rise further, the decision to lock in 10-year funding at 7.90 per cent would provide significant funding certainty. That is the trade-off large borrowers have to make in a volatile rate environment.”
rediff.com
Sources
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