Reliance Industries Ltd., owner of the world’s largest oil-refining complex, is offering to pay a margin of about 250 basis points for a $1 billion, five-year loan, according to a person familiar with the matter.
The margin is over the London interbank offered rate, or Libor, and proceeds will be used for capital expenditure, the person said, asking not to be identified because the information is private.
Reliance is spending $8 billion to increase its petrochemical capacity betting Indian demand for materials used to make plastics and polyester will help counter weaker global fuel sales. That’s part of an $18 billion investment plan aimed at doubling operating profit over the next five years as outlined by billionaire Chairman Mukesh Ambani at the company’s shareholder meeting in Mumbai earlier this month.
Tushar Pania, a Mumbai-based spokesman, declined to comment on the $1 billion financing when contacted by telephone today.
The Mumbai-based company has a $1.5 billion loan maturing May 2016, according to data compiled by Bloomberg. The facility, signed in December 2010, pays a margin of as much as 200 basis points more than Libor, the data show. A basis point is the equivalent of 0.01 percentage point.
Reliance shares were little changed at 737.4 rupees at close in Mumbai. The stock has gained 6.4 percent this year, compared with a 9.3 percent increase in the BSE India Sensitive Index.
Reliance signed a 13-year loan, equivalent to $2 billion, backed by credit insurer Euler Hermes SA with nine banks in May, the largest such borrowing by India’s biggest energy company since May 2007, according to data compiled by Bloomberg.
The cost of insuring Reliance’s bonds against non-payment using credit-default swaps has tumbled 78 basis points this year to 322.5 on June 19, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Swaps insuring the debt of State Bank of India, considered a proxy for government debt, have fallen 23 basis points to 372 over the same period, CMA data show.
Credit-default swaps are debt instruments for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.