MUMBAI, July 16: Reliance Industries is negotiating with a clutch of domestic banks for raising foreign currency non-resident (FCNR-B) loans to fund its working capital requirements. The petrochemical giant -- which has raised the maximum foreign currency loans among domestic private sector companies -- is planning to source FCNR(B) loans at 100 basis points over Libor.

The company is planning to raise short-term funds at a rate which is cheaper than the benchmark rate for FCNR(B) loans. The State Bank of India, which has the largest corpus of FCNR(B) funds, has pegged the interest rate at 200 basis points over Libor for six-month loans. Other public sector banks and foreign banks often charge higher interest rates.

Reliance officials refused to divulge the quantum of funds the company is planning to raise through the FCNR(B) route. The requests are being placed with a number of commercial banks for financing the import of equipment for various continuing projects, said sources.

If Reliance is able to get FCNR(B) loans at 100 basis points over Libor, this could turn out to be the cheapest domestic short-term foreign currency loan raised by any domestic corporate so far.

Air India recently raised $100 million worth of FCNR(B) loans from Bank of Baroda at a rate cheaper than the 200 basis points above Libor. "This has perhaps prompted Reliance to explore the possibility of sourcing cheap foreign currency loans through this route," an industry source said.

By availing itself of FCNR (B) loans, Reliance will be able to stay out of the overall excternal commercial borrowings (ECB) limit prescribed by the finance ministry. To date, it has a total forex exposure of $940 million of long-term loans ranging from 20 to 100 years. It is also in the process of offering a (pound sterling) 100 million ten-year bond in the next few days.

"By accessing the FCNR(B) loans, the company will be able to source short-term loans as this is the only route available to raise foreign loans below three-year maturity," an analyst said.

Reliance stands to gain substantially on the cost of short-term funds as the FCNR(B) loans will be substantially cheaper than rupee loans. "Since forward premia are currently ruling at a low level, even if the corporate takes forward cover to hedge the risk, the cost of FCNR(B) funds will work out cheaper than rupee loans," a senior banker said.

At 100 basis points over Libor, the effective interest rate works out to 6.84 per cent as against the 13.5 per cent prime lending rate of the State Bank of India. As six-month cover currently costs about 3.6 per cent for six months, the total cost of the loan including the forward cover would be less than 11 per cent.

The average maturity of the total corpus of $914 million raised by Reliance Industries is 23 years, with the maturity period ranging from 10 to 100 years. In the last fiscal, Reliance had resorted to $ 640 million worth of ECBs.

It had raised a $100-million, 100-year loan and a $240-million 30-year loan with a put option in the 10th year in January 1997; a $100-million loan of 50-year maturity with put at 30 years in August 1996; a $ 100-million 30-year loan with put option in the 12th year and a $ 100-million loan of 20-year maturity.

The average interest rate of all these ECBs is 9.75 per cent exclusive of the cost of forward premia.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.