Case : Reliance Industries

Reliance Industries
Case focus is on foreign currency bonds
The benefits and risks associated with these
bonds
From the point of view of a large, global
company

A perpetual bond
Does not have a maturity
Coupon is paid for ever
No obligation to redeem

Question
Before we take up the questions in the
case, a brief look at the Companys
financial highlights. What is your
assessment of the Companys financial
performance?

Dupont Formula : RIL, 2013-14

Return on Net Worth =
(Net Profit to Sales ) x ( Sales to Total Assets ) x
(Total Assets to Net Worth )
= (21984/401302) x (401302/367588) x
(367583/197074)
= (5.47%) x ( 1.092 ) x ( 1.86 )
= 11.16%

Question
What are the benefits
and risks associated
with the companys
issue of perpetual
bonds?

In response to the question on the previous slide:

Major benefit would be lower cost ( 5.875% in the
present case )
Makes sense so long as there are offsetting dollar
revenues ( which RIL has )
Potential risk lies in servicing such a long-tenor loan
in a foreign currency
But, on the other hand, RIL has call options on the
bonds
And now, the core question:
How does one explain the company going in for large
borrowings at a time when the company is sitting on a cash
mountain ( Rs. 84000 crores)

Possible Explanation
A war chest for
acquisitions abroad
( shale oil in the US,
Other )

Perhaps, mega projects in the

Pipeline ( KG basin,
downstream
Investments )

Companys long tradition of

raising funds, not when it is
needed, but when the market
timing is right

Collaboration
with BP
Plans to raise
KG output
significantly

Some recent issues of International

Bonds by Indian Companies
1 ICICI Bank : CNY 600 m. ( 4%, 2017)
2 SBI : USD 100 m. ( 3.95%, 2024)
3 NTPC : USD 500 m. ( 4.325, 2024)
4 Axis Bank : USD 500 m. ( 3.25%,
2020)
5 JSW : USD 500 m. ( 4,75%, 2019)

Euro-money Markets