In the US, 10-year treasuries saw yields rise by over 13 basis points on the first day of trading, while rates in India are also inching up as the RBI drains surplus liquidity from money markets.
On Tuesday, Moody’s assigned a Baa2 rating to RIL’s proposed $5-billion fund-raise. The company is raising funds from global institutional investors taking advantage of Section 144A of the US Securities Act, which allows an exemption for offers and sales to large ‘qualified institutional buyers’ in the US. RIL’s adjusted net debt/operating profit was estimated at around 1.1x as of September 30, 2021.
Reliance Jio Infocomm is looking to raise Rs 5,000 crore through five-year bonds at less than 50 basis points
(100bps = 1 percentage point) over the current yield on 5-year government bonds, which is 5.8%. Last year, the telecom unit had repaid most of its high-cost debt after raising equity funds from several private equity investors. Now, the company is again looking at making large investments to roll out 5G services.
Bankers say that although yields have hardened it is a good time to lock into long-term rates as the RBI is widely expected to start hiking its rates after April. Reliance Industries did not comment on its fund-raising plans.
The group began the new year with Reliance Industries announcing that its solar unit will buy UK-based sodium-ion battery technology provider Faradion for $135 million as part of its push into the renewable energy segment.
In the petrochemicals business, Reliance Industries had last month said that it would partner with Abu Dhabi Chemicals Derivatives Company RSC (TA’ZIZ) and invest $2 billion in setting up a petrochemical production facility in the UAE.
According to Moody’s, Reliance Industries’s existing cash, along with expected cash flows from operations, will be sufficient to cover its cash outflows for capital spending and debt maturities in the next 18 months. Last November, it received around Rs 266 billion in proceeds from the final call on its rights issue, which further enhanced its liquidity.
Reliance Industries has diversified earnings sources with little or no correlation, given its presence in the refining and petrochemicals, digital services, and consumer retail segments. These three segments together generated around Rs 944 billion ($12.6 billion) or 86% of RIL’s consolidated operating profit for the 12 months ended September 30, 2021.
The company’s announcement to increase tariffs for its digital services business is positive for the telecommunications industry, while the easing of pandemic-related disruptions will support demand for oil and gas as well as increase consumer spending. “A resurgence of coronavirus infections due to the emergence of new variants could result in fresh lockdowns and affect the company’s refining & petrochemical and retail earnings,” Moody’s said.