Banks, mutual funds and cooperative banks have lapped up Rs 10,000 crore plus debentures of Reliance Industries Limited (RIL). The private sector Axis Bank has corned the bulk of Reliance's offering by investing Rs 2,000 crore followed by country's largest bank, the State Bank of India (SBI), with Rs 1,500 crore. The largest private bank, HDFC Bank invested Rs 975 crore and Kotak Mahindra Bank has put in Rs 425 crore.
The risk-averse banks flush with money post the Reserve Bank of India (RBI)'s liquidity infusion of over Rs 8 lakh crore this year has got an opportunity to park funds at 6.95 per cent to 7.05 per cent. "While these non-convertible debentures (NCDs) are unsecured in nature, Reliance is a pretty strong company which assures investors of risk free returns," says a debt dealer in a domestic securities firm.
Currently, the central government is borrowing at around 6 per cent while the state governments are borrowing in the debt market between 6-7 per cent. There are some state governments with weak finances which end up borrowing at over 7 per cent. RIL manages to get money at much lesser rate than what many states in India pay to raise resources.
The asset management companies (AMC), which are a bit cautious in investing in debt paper of NBFCs and other corporate post IL&FS and Covid, have also got a good opportunity to invest in short term paper. The AMCs have committed close to Rs 4,000 crore. The big mutual fund investors include IDFC, L&T, DSP, ICICI Prudential, Sundaram, SBI, Axis and HDFC.
In April, the RIL board cleared a proposal to raise Rs 25,000 crore through NCDs on a private placement basis. Clearly, RIL will come to the market again. In fact, there are expectations of interest rates going further down, which will offer a good opportunity to raise resources to replace high cost funds raised earlier. It's a win-win both for banks and the RIL. The three-year tenor of loans for banks perfectly matches with the three long-term repo-linked funds provided by the RBI.
A month ago, the RBI announced targeted term repos of three-year tenor for up to Rs 1 lakh crore for banks to invest in the investment grade corporate bonds, commercial paper and NCDs. The objective was to support the Covid-impacted companies. But the risk averse banks found a good opportunity to deploy these cheap funds in triple A rated corporate and bonds of PSUs backed by sovereign guarantee.
Similarly, debt funds needed safe and secure investment opportunity in such difficult times when chances of default have risen in investment grade companies.
The RIL has pounced on the opportunity to replace its relatively high-cost funds with low-cost debentures as the interest rates are at rock bottom. The three-year tenor also goes well with RIL's Rs 53,125 crore rights offering under which the third tranche of rights money from investors, which is 50 per cent, would come by November 2021.
The rights issue of RIL with interest in oil, retail and telecom opens on May 20 this week. The RIL's rights issue is part of a bigger plan of the largest conglomerate to be zero debt company by the end of March 2021.
The rights issue, which comes after a gap of nearly three decades, offers one new share for every 15 shares held in the company. The price fixed is Rs 1,257 per share. The current market price of RIL is trading at Rs 1,449 per share.