Reliance sells India's first fixed-for-life perpetual

Mukesh Ambani-controlled Reliance Industries last night priced an $800 million senior perpetual bond after attracting an order book of $3 billion.

The market backdrop towards perpetuals has soured in recent weeks, with Cheung Kong’s perpetual shedding several points in secondary and Chinese developer KWG Property pulling its perpetual due to weak demand.

Despite this, the company succeeding in closing the first fixed-for-life perpetual — which meant that it offered no step-up in coupon or rate reset — out of Asia. Such bonds are difficult to sell as there is no incentive for the borrower to call the bonds when rates rise.

So the fact that investors were willing to buy it was a vote of confidence for Reliance Industries. Even as India teeters on the brink of a downgrade into junk status, many view the Indian oil refiner to be a strong triple-B credit. Previously in Asia, Li Ka-shing’s Cheung Kong has issued a fixed-for-life perpetual, but only a handful of borrowers in Asia would be able to do the same.

The leads started marketing the deal on Monday, with an initial guidance at the area of 6%. The guidance was revised to 5.875% to 6%, with the bonds pricing at the tight end on Tuesday evening.

Unlike Cheung Kong’s perpetual, no coupon deferral is allowed for Reliance Industries senior perpetual. The bonds are on par with the company’s senior debt. There is also no equity treatment from the rating agencies or accounting firms — but sources say the company does not need it.

“It doesn’t need equity as it’s a very strong company and is rating-constrained by the sovereign rating ceiling of India,” said a source. “Making it qualify as equity would have increased cost with no benefit.”

The bonds are callable after five years, which gives the borrower the flexibility to refinance the bonds. “Reliance is able to lock in funding and the beauty is that they can reassess whether the funding levels are competitive every five years,” said another source.

Such callable features could not be included in a long-dated bond, yet with its perpetual Reliance is getting competitive funding for a bond that investors could end up holding onto indefinitely.

In terms of comparables, Mexico’s century bond trades at a 75bp pick up over its 30-year bonds. The Reliance Industries 30-year bonds were trading at yields of 5.25%/5.375% — which meant that Reliance Industries’ perpetual offered a pick-up of about 50bp, pricing inside the spread seen in Mexico’s bonds.

Asian investors were allocated 53%, US investors 20% and European investors 27%. Private banks were allocated 53% and institutional investors 47%. A total of 170 investors took part.

Bank of America Merrill Lynch, Citi and HSBC were joint global coordinators and bookrunners. Barclays, Deutsche Bank, J.P. Morgan and Royal Bank of Scotland were bookrunners. The bonds are expected to be rated Baa2 by Moody’s and BBB by Standard & Poor’s.

The deal was the first offshore dollar bond issued by Reliance Industries since 1997, when it issued its century bond. More recently it has issued in the offshore market through its US entity. Mukesh Ambani and his family own a 41% stake in the company.