Reliance Industries (RIL) is to buyback $ 400 m (approx. Rs 16 bn) of non–convertible bonds.
Reliance Industries (RIL) is India’s largest producer of fibre intermediates (polyester terephthalate and mono–ethylene glycol) and downstream petrochemicals (polypropylene, high-density polyethylene, linear low-density polyethylene).
Reliance has a total debt of nearly Rs 100 bn. The government imposed a rule that almost 50% of the foreign debt that the Indian companies raise has to be brought back to the country. This implied that the practice of allowing the entire foreign currency funds to stay abroad and benefit from the rupee depreciation till the funds were required for expansion that the company was getting earlier was partially diluted.
Reliance is reported to have raised almost $ 1.3 bn via ECBs and instead of bringing the money back to India, if the company anticipates the rupee to depreciate further (in the light of rising oil prices) it would make far more sense for the company to prepay foreign currency loans and borrow from the domestic markets (what with the domestic real interest rates at equivalent levels if one were to anticipate a 5% rupee depreciation in the coming year).
If the company opts not to borrow from the domestic market, the saving from interest due to this prepayment would add around Rs 1.76 bn to the company’s bottomline in the coming year FY2001.
The Reliance Industries has also been rated as a buy primarily due to the rise in petrochemical prices (tracking international prices) and its holding in blue chips such as L & T and BSES. The increase in the prices would nullify to some extent the impact of the minimum alternate tax on the company.
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