Reliance Industries (RIL) has raised ₹13,000 crore through 10-year bonds at a coupon of 7.90 per cent, taking its total rupee bond borrowings this month to ₹25,000 crore as borrowing costs face upward pressure amid expectations of a possible rate hike by the Reserve Bank of India (RBI).
Of the latest issue, ₹3,500 crore was allotted to anchor investors, with large mutual funds and insurance companies subscribing to the portion, while the remaining ₹9,500 crore was raised through the non-anchor portion.
The latest borrowing follows RIL’s ₹12,000 crore five-year bond issue earlier this month, which was priced at a 7.47 per cent coupon. The company is also reported to be considering a large securitisation transaction.
RIL’s decision to raise long-term funds comes at a time when the bond market is facing pressure from expectations of tighter monetary policy, elevated crude oil prices, pressure on the rupee and higher global bond yields.
At 7.90 per cent, the 10-year RIL bond offers a spread of around 65 basis points over the current annualised 10-year government bond yield of around 7.25 per cent. The spread is around 74 basis points over the semi-annualised benchmark yield of 7.16 per cent.
“Reliance Industries’ decision to raise ₹13,000 crore through a 10-year bond at 7.90 per cent, despite the market increasingly expecting an RBI rate hike, is essentially a decision to prioritise funding certainty over trying to time the interest rate cycle,” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP.
The 10-year borrowing also carries an opportunity cost if bond yields soften. A moderation in crude prices, easing of geopolitical tensions and lower inflationary pressures could bring down government bond yields, potentially allowing RIL to raise funds at a lower cost at a later date.
However, locking in long-term funding provides certainty for a large borrower at a time when the direction of interest rates remains uncertain. If yields rise further, RIL would benefit from having secured funding at current levels, while a sharp fall in yields would mean the company had prioritised certainty over waiting for cheaper funding.
“The Reliance transaction therefore looks less like a bet on higher interest rates and more like a hedge against the risk of funding costs moving higher. If yields subsequently fall sharply, Reliance may not have captured the lowest possible borrowing cost. But if yields rise further, the decision to lock in 10-year funding at 7.90 per cent would provide significant funding certainty. That is the trade-off large borrowers have to make in a volatile rate environment,” said a market participant.
RIL’s ₹25,000 crore rupee bond fundraising in September is its largest monthly borrowing from the domestic bond market, surpassing the ₹20,000 crore 10-year NCD issue it raised in November 2023. The 2023 issue, priced at a 7.79 per cent coupon, was the largest single-tranche NCD issuance by a non-financial company in the Indian capital markets at the time.
