MUMBAI, June 20: Reliance Industries (RIL) and Indian Petrochemicals Corporation (IPCL) have entered into a five-year currency-cum-interest rate swap amounting to $17 million. The deal, put through by HDFC Bank, is said to be the first of its kind after the Reserve Bank of India relaxed guidelines permitting such transactions without prior permission.

According to sources in the inter-bank foreign exchange market, Reliance will now service its original rupee loan liability amounting to about Rs 60 crore (indicative $17 million conversion inclusive of the premium) at the six-monthly London inter-bank offered rate (Libor). IPCL will in turn service its underlying greenback liability of $17 million on its books at 15 per cent in rupee terms.

HDFC Bank will pocket a commission of 0.25 per cent for its role as the mediator, sources said.

"Reliance is effectively borrowing in rupees but paying in dollars while IPCL is doing vice-versa," a forex dealer said. In other words, IPCL will pay Reliance 15 per cent, while IPCL will pay Reliance Libor rates under the new terms.

"The deal shows how corporates with varying needs on their liabilities side can secure their interests," a treasury source said.

The transaction effectively means that neither Reliance nor IPCL needs to bother about its orginal rupee and greenback loan liabilities. For all practical purposes, they have been interchanged.

Reliance will service its original rupee liability at Libor rates at six-monthly intervals, while IPCL has managed to effectively hedge its underlying greenback liability at 15 per cent.

Sources close to IPCL said that the state-run entity has an internal policy to mandatorily hedge a certain percentage of its foreign currency liabilities. The rest may or may not be hedged and left open. "IPCL's view here is that it is comfortable with rupee liability capped at 15 per cent service cost, and vice-versa for RIL. Both the corporates here have polar views/needs," a dealer explained.

Forex market observers said that three way RIL-HDFC Bank-IPCL deal is another indication of the growing maturity of the domestic market.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.