MUMBAI, December 1:With the forex market in turmoil, Reliance Telecom has swiftly shifted focus to domestic borrowings. It has replaced its $750-million external commercial borrowings (ECB) programme with cheaper rupee funds.

The company has decided to retain Rs 600-crore subscription to its tax-free infrastructure bond issue which mopped up Rs 750 crore. The original target of the issue, launched on November 17, was Rs 100 crore. The tax-free bond issue closed on Monday.

Though Reliance Telecom had received the finance ministry's nod to raise $750 million through the ECB route a few months back, it has not raised any forex loan from this limit. The increasing cost of overseas debt and the softening domestic interest rates have prompted the company to opt for rupee resources.

The rupee funds raised through the issue will cover a large portion of the company's fund requirement in the coming years, said banking sources.The funds raised via the tax-free bonds have been at very competitive rates ranging from 9.75 per cent to 10.50 per cent per annum, with maturities ranging from 5 to 8 years. Over 90 per cent of the subscription received by the company is for the longest maturity of eight years.

This is the largest-ever tax-free bond issue floated by any Indian company, including leading public sector undertakings. The bond issue was originally targeted at raising Rs 100 crore, but was subsequently raised to Rs 200 crore before the launch of the issue to accommodate firm commitments.

At the time of the issue closure on Monday, the order book had applications for Rs 750 crore. Reliance Telecom will now retain Rs 600 crore of the amount. This is also the first tax-free infrastructure bond launched in the country after last year's budget made bonds for funding infrastructure projects tax-free.

Reliance Telecom's bond issue is also the first-ever offering in the domestic debt markets by a private sector telecom company for setting up greenfield cellular and basic projects. The bonds were launched with principal and interest guaranteed by Industrial Credit and Investment Corporation of India, securing AAA (SO) rating from Crisil, which enabled the company to raise funds at the best rates.

The effective rate of borrowing at 9.75 to 10.5 per cent works out much finer than several blue chip corporates which had recently raised much smaller amounts of six-year money at 12.25 per cent. The comparable cost of foreign loan would work out much higher on a fully hedgedbasis.