MUMBAI, July 15: Reliance Industries is launching the first-ever sterling bond offering by an Indian corporate. The petrochem giant is planning to raise a £100-million, 10-year facility in the UK market.

The lead mangers to the issue - Hongkong and Shanghai Banking Corporation (HSBC), Merill Lynch and United Bank of Switzerland (UBS) - will kickstart roadshows on Wednesday in London and the pricing will be fixed early next week. "The price of the sterling bond will be linked to the 10-year UK gilts," an industry source said.

At present, the 8.50 per cent gilt maturing in 2007 is trading at 7.162 per cent. The offering will set a new benchmark for Indian entities who intend to raise money in the UK market. According to corporate treasury sources, the Reliance sterling offer comes at a time when the pound is set to gain against all major currencies in the near future.

"The pound has lost a lot of ground in the past few months against the dollar, the deutche mark and the yen due to uncertainites about the UK joining the European Monetary Union. Now, with uncertainities removed, the sterling can only strengthen against all the major currencies," a treasury chief said.

Reliance will, thus, stand to gain as the pound is expected to gain strength from now on after all the battering it has received. "This is a strategic move by the leading Indian corporate. By having cross-currency exposure, Reliance will be able to gain substantially through currency swaps," an anlayst said.

The petrochemical giant has raised the maximum foreign currency loans among Indian private sector companies. The entire corpus of its $940-million foreign currency loans - with an average maturity of 23 years - is in single currency, US dollar.

RIL is the first company in Asia to raise 100-year and 50-year facilities in the US bond market. Last year it had set a benchmark in the Yankee bond market when it raised a $50-million 100-year paper. All these bonds are "unsecured" and were raised without recourse to any government guarantee.

The comany has been able to establish a benchmark yield curve for bonds with maturity periods varying between 10 years and 100 years.

The average interest rate of all these ECBs is 9.75 per cent, exclusive of the cost of forward premia. These international debt issues have assisted the company in reducing its overall cost of capital. In the last fiscal, RIL was assigned investment grade ratings by Moody's and National Association of Insurance Commision - Baa3 and NAIC 2, respecitively - and BB+ (with positive outlook) by Standard & Poor's. In the case of S&P's, India's soverign rating was a limiting factor.

COMMENT

Diversifying currency risks

Reliance's treasury operations have scored another first. By borrowing in pounds, they will be diversifying their currency risks, and the link to the UK 10-year gilt yield will also mean that interest rate risk will be spread out over several markets. Reliance already has substantial dollar liabilities. Having liabilities spread over several currencies will provide a hedge against fluctuations in a particular currency.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.