Coordinating arrangers ABN AMRO, ANZ Investment Bank, Credit Lyonnais and Standard Chartered Bank have launched a $250 million equivalent yen-denominated loan for India's Reliance Industries. Proceeds are being used to fund the company's bond buyback programme announced last month.
Under the buyback programme, which expires on July 18, Reliance has proposed to retire $341 million worth of bonds maturing in 2005, 2026 and 2027. The 8.25% 2027 and 7.625% 2027 bonds are puttable in 2007 while the 9.375% 2026 bonds are puttable in 2008. The purchase price for the bonds will be set on July 16.
The loan facility, comprises four tranches matching the maturities of the bonds in the buyback programme and has an average life of 4.66 years. For the first year the interest margin for all four tranches is 40bp over yen-libor. After the first year, however, Tranche A will pay a margin of 75bp (three-year), Tranche B and C will pay 90bp (both four-year) and Tranche D will pay100bp (six-year). The interest differential between the first and subsequent years reflect's Reliance's option to repay the facility after the first year.
Banks invited to participate in the deal can either come in as arrangers with commitments of $25 million on a pure underwriting basis, or with commitments of $15 million on a take-and-hold basis. Banks can join the deal as underwriters for tranches A, B & C or A, B, C, & D.
The deal is said to be paying an all-in of a little over 100bp, close to the all-in level of 99bp it paid on its five-and-a-half year $110 million equivalent yen-denominated loan of March this year. Reliance paid 70bp over yen-libor for the first year, 80bp for the second year and 95bp for the third and subsequent years. Proceeds were used to retire a portion of Reliance's GBP150 million 10-year Eurobonds.
Both the loan and attendant bond buyback demonstrate Reliance's ability to refinance itself and retire more expensive debt. Analysts estimate the company will save 3% to 4%, even after taking into account the cost of the new funding.
Some bankers have argued that it makes little sense to lend money to Reliance when it is possible buy its bonds at a much higher yield in the secondary market. But as others point out, Reliance's bonds are mostly illiquid and investors have preferred to hold rather than trade in the secondary market.
General syndication for the deal will be launched at the end of the month. Reliance can drawdown the amount anytime after July 24. The maximum amount of the facility will be $250 million and the final amount will largely depend on the outcome of the bond tender offer.
