Billionaire Ambani Bucks Loan Slump as Rupee Drops

Billionaire Mukesh Ambani’s Reliance Industries Ltd. is seeking $1.75 billion in overseas loans even as the rupee’s plunge to a record sends foreign-currency borrowings by Indian companies to a three-year low.

The Mumbai-based energy explorer plans to borrow by mid-August to refinance debt and fund capital expenditure, said two people familiar with the matter. Local companies raised $230 million abroad in July, the least since April 2010 and 84 percent less than June, data compiled by Bloomberg show. Syndicated loans in dollars, euros and yen in Asia excluding Japan fell 21 percent to $16.4 billion.

Reliance, which generates 65 percent of its revenue abroad, will lock in borrowing costs before the U.S. Federal Reserve starts paring stimulus. Companies that earn mostly in rupees have hesitated as the currency plunged to an all-time low of 61.2125 per dollar on July 8 after global funds fled emerging markets on signs the central bank will taper its $85 billion of monthly bond purchases as early as this year.

“The currency is the major concern for companies, and Reliance’s dollars earnings help hedge most of that risk,” said Chokkalingam G., the chief investment officer at Centrum Wealth Management Ltd. in Mumbai, which manages about $310 million in assets, including Reliance shares. “Companies that don’t earn as many dollars are under tremendous stress to service their debt. Reliance’s balance sheet helps it buck the trend.”

Refinancing, Expansion

Reliance’s facility may be drawn in U.S. and Singapore dollars, euro and Japanese yen, and proceeds will help to refinance $1.2 billion of multicurrency loans signed in 2008, the people said, asking not to be identified because the details are private. Some $550 million of new money denominated in U.S. dollars will be raised for capital expenditure.

Tushar Pania, a Mumbai-based spokesman for Reliance, declined to comment on the company’s financing plans yesterday.

The explorer and oil refiner plans to spend 1.5 trillion rupees ($25 billion) over the next three years to expand businesses ranging from natural gas to petrochemicals and telecommunications, Ambani told shareholders in June. The company borrowed about $5.4 billion overseas via bonds and syndicated loans in 2012, Bloomberg-compiled data show.

‘Lurking Fear’

“Reliance Industries’ credit profile is fairly strong at a local currency rating of BBB/positive and foreign currency rating of BBB-/stable, and the company currently has a fairly low cost of financing,” Fitch Ratings Ltd. analyst Tahera Kachwalla said yesterday. “This $1.75 billion debt deal won’t materially impact its credit profile, given the company’s debt of over $19 billion as well as its strong cash balance of around $15 billion as at the end of March.”

State-owned Indian Railway Finance Corp., a unit of Asia’s oldest train network, is yet to borrow $500 million approved by its board in May. Housing & Urban Development Corp. said on July 9 it put a $150 million loan from the Asian Development Bank on hold, while JSW Steel Ltd. scrapped its borrowing plans as U.S. currency debt becomes more expensive to service.

Bharti Airtel Ltd., India’s largest mobile-phone operator, said yesterday finance costs, including currency exchange fluctuations, increased 58 percent to 11.7 billion rupees last quarter from a year earlier.

“Companies need to factor in extreme volatility in the currency markets and a lurking fear that U.S. interest rates will rise,” Rajiv Datt, the New Delhi-based managing director Indian Railway Finance said in a telephone interview. “There is uncertainty at the moment.”

Biggest Risk

The rupee declined 0.5 percent to 60.6550 per dollar as of 10:43 a.m. in Mumbai. The currency had closed 0.2 percent higher at 60.36 per dollar yesterday, recovering from the day’s low of 61.2025, after Finance Minister Palaniappan Chidambaram said the government has decided on steps to attract investment from India’s diaspora, and issuing foreign-currency sovereign bonds remains an option. The currency has declined 9.3 percent in 2013, the worst performer in Asia after the Japanese yen.

The Reserve Bank of India, which on July 15 sought to buoy the currency by creating a cash crunch, said this week the measures such as increases in some borrowing costs will be reversed once the rupee stabilizes.

The central bank kept the benchmark repurchase rate at 7.25 percent on July 30 and said its recent liquidity-tightening measures aimed at curbing exchange-rate volatility “will be rolled back in a calibrated manner.” The rupee fell after the RBI cut its gross domestic product growth forecast for the year through March 2014 to 5.5 percent from 5.7 percent, and said India’s current-account deficit remains the biggest risk to Asia’s No. 3 economy.

‘A Slowdown’

Governor Duvvuri Subbarao on July 15 capped banks’ access to cash under the liquidity adjustment facility, increased the daily balance requirement for cash reserves and raised two interest rates. The measures, left unchanged this week, contrast with 25 basis-point cuts in the benchmark rate in January, March and May each to spur the slowest economic growth in a decade.

Syndicated foreign-currency loans have fallen 67 percent to $8.9 billion in 2013, according to data compiled by Bloomberg. Rupee-denominated loans rose to 1.5 trillion rupees in the same period, from 1.4 trillion rupees a year earlier, the data show.

“We are in the midst of a slowdown,” Parthasarathi Mukherjee, the Mumbai-based president for large corporates at Axis Bank Ltd., said in a July 30 telephone interview. “Some companies may defer external commercial borrowings. The rupee’s fall may affect their expansion plans.”

Interest Margins

Average interest margins for loans from India in the so-called G3 currencies signed in June were about 325 basis points more than the London interbank offered rate, compared with about 465 basis points for debt borrowed in May, according to data compiled by Bloomberg.

The yield on the benchmark 10-year sovereign bonds denominated in rupees has climbed 102 basis points, or 1.2 percentage point, to 8.13 percent from a 44-month low reached May 24. The rate on the 7.16 percent notes maturing in May 2023 declined seven basis points today to 8.14 percent.

Credit risk has increased. The cost of insuring government-controlled State Bank of India’s debt against non-payment for five years using credit-default swaps has climbed 34 basis points this year to 259 as of July 31, according to data provider CMA. Contracts that protect Reliance’s debt rose 18 to 242.5 in the same period.

“Concerns around the exchange rate are far from over, and that’s keeping borrowers away from the market,” K.R. Kamath, New Delhi-based chairman of state-owned Punjab National Bank said in a July 30 interview. “Uncertainty in global markets has unnerved lenders. The loan market will remain suppressed in the short term.”