Mumbai, Nov 16: Reliance Telecom, the wholly-owned subsidiary of Reliance Industries, will raise Rs 150 crore through the first-ever private sector issue of tax-free infrastructure bonds.

The company reserves the right to retain any oversubscriptions to the private placement, which opens on Monday. The bonds will be listed on the National Stock Exchange.

The placement makes Reliance Telecom the first private-sector company to come out with a tax-free bond offering, after Section 10(23)(g) of the Companies Act was amended in the last budget exempting tax on interest, dividend and long-term capital gains at the hands of the investor, for debt instruments issued by infrastructure companies.

The repayment of principal and interest has been guaranteed by ICICI, which has also given an AAA(SO) rating to the issue. DSP, SBI Caps and I-Sec have received the mandate to act as arrangers to the debt issue. The tax-free bonds will be issued in three series. A first series of five-year bonds will carry an interest rate of 9.75 per cent.

A second series of bonds, with an average maturity of six years, will be repayable equally (in three instalments of one-third of the total amount each) at the end of fifth, sixth and seventh year. It will carry a coupon of 10.25 per cent.A third series will be repayable equally (one-third of the total amount each) after the sixth, seventh and eighth year, and carry a coupon rate of 10.50 per cent.

The debt offering has been structured to keep the servicing costs at low levels. The second series of Reliance Telecom bonds, which has been structured similar to the 12.25 per cent non-convertible debenture issue by Grasim Industries, works out to be cheaper even after factoring in the guarantee charges.

ICICI last week placed seven-year preference shares at a record low 9.5 per cent, while its five-year shares carry interest rate of 9.30 per cent. While the Reliance seven-year paper carries a higher coupon rate of around 100 basis points, it is a start-up venture in a relatively new field, while the ICICI loan was raised for further onlending, which carries far lower risks.Reliance already has government approval to raise as much as $800 million worth of external commercial borrowings. But after the recent south-east Asia currency turmoil, the external borrowing scene has changed drastically, and even for blue-chip companies like Reliance Industries, spreads are as high as 325 basis points above the comparable treasury rates. This, taken together with the substantially hardened forward premium of not less than 7 per cent has hiked cost of foreign funds to unviable proportions: hence Reliance has decided to take the domestic route after nearly 24 months of unstinted foreign borrowings of over $1,000 million in two years, including $400-million-plus raised in a matter of 72 hours a few months ago.

The Reliance group has received the mandate for offering basic services in Gujarat, and cellular services in seven circles (which includes 13 states) including Assam, Bihar, Himachal Pradesh, Madhya Pradesh, Orissa, West Bengal, and the North-Eastern States, and the Rs 150 crore issue will test the waters for larger debt offerings in the future. The company holds a 15 year licence for basic services, while its cellular venture has been given a 10-year licence in Orissa and West Bengal.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.