Reliance Industries, the flagship company of Mukesh Ambani’s Reliance Group, reopened its $1 billion 2022 bonds early on Friday morning with an opportunistic $500 million tap that priced inside of secondary levels — a rare outcome for a tap.
Most taps offer investors a wider spread over Treasuries compared to the outstanding bonds to attract investors to participate. But Reliance took advantage of strong demand for its credit — particularly from US investors that were keen to take a meaningful exposure — to tap at a lower spread and re-price its curve.
The tap brought the total issue size to $1.5 billion. Bank of America Merrill Lynch, Barclays Capital, Citi, HSBC and UBS were bookrunners on the original deal, which priced on February 9, and the company retained Barclays, Citi and HSBC for the tap.
The tap was announced late Thursday morning with an initial price guidance in the area of Treasuries plus 340bp, representing a 5.42% yield and a 12bp premium over the secondary levels. This was already aggressive compared to recent taps, which have started out 25bp wider than outstanding bonds.
Orders totalling $2.5 billion poured in from Asia and Europe, which gave the leads comfort to tighten the guidance aggressively to Treasuries plus 325bp to 335bp. By the time US orders came in, the book had swelled to more than $3.5 billion, allowing the leads to price the deal at the tight end.
Reliance Industries’ 2022s were quoted at Treasuries plus 328bp before the deal was announced, so the bonds priced 3bp inside of that. During the course of the bookbuilding, as investors heard that the deal was going well, Reliance Industries’ bonds tightened 2bp to 3bp.
According to one person familiar with the deal, investors were willing to buy the bonds at a tighter spread than was on offer in the secondary market as there were plenty of real money accounts that wanted meaningful exposure to the company.
“The bid-offer is only valid for orders of $1 million,” said the source. “But if you want exposure of $20 million or more, you can’t get that without moving the spreads a lot tighter. We knew from the previous Reliance deal that there was a lot of unfulfilled demand from US accounts and this gave us comfort to tighten guidance.”
Reliance is a unique case, the source added. “It is in the oil-and-gas sector and US investors are familiar with the company so it managed to capture demand from both emerging market funds as well as US high-grade funds.”
The bonds traded at Treasuries plus 325bp/323bp in secondary on Friday afternoon, hovering around the reoffer. US investors were allocated 50%, Asian investors 31% and the rest went to Europe. By investor type, 69% were allocated to fund managers, 11% to government agencies, 8% to private banks, 7% to banks and 5% to insurers. A total of 213 accounts took part.
Reliance had priced the original $1 billion transaction at Treasuries plus 345bp and the notes were reoffered at 99.481 to yield 5.468%. Its latest tap priced 20bp inside the initial deal at Treasuries plus 325bp and was reoffered at 101.018 to yield 5.267%, allowing Reliance to reap cost savings.