BOMBAY — The Ambani’s are indeed major newsmakers. Whatever they say and whatever their companies do is big time news. Little wonder then that the last day of the month of April was dominated by Reliance. The entire group was to declare its financial results for 2000-2001 and as usual, there was immense market expectations. But even prior to Reliance making the headlines with the results, it had already made the headlines by tying up India’s largest foreign currency term loan for $750 million.
Reliance Petroleum Ltd. (RPL) was the first to declare its performance. This largest private sector company of India posted a net profit of Rs.2.97 billion for the quarter ended March 31, 2001, on a total income of Rs.75.72 billion for the quarter ended March 31, 2001. The net profit for the year ended March 31, 2001, was at Rs.14.64 billion.
And despite such a huge profit, the company declared a maiden dividend of a token 5 percent. Apart from this, the other big news was that the company was raising the FII limit to 49 percent of the paid up equity share capital of the company.
RPL’s refinery has operated at 95 percent capacity utilization in the fourth quarter, despite the devastating earthquake, which hit the state of Gujarat on Jan. 26, 2001. The capacity utilization for the full year stands at 95 percent, which compares favorably with the average rate for other Indian refineries at about 91 percent, and also with other regional operating rates, with North America 93 percent, Europe 86 percent and Asia Pacific 96 percent.
And then later, Reliance Industries Ltd. (RIL) declared its results. It posted a lower net profit of Rs.5.40 billion for the quarter ended March 31, 2001, as compared with Rs.6.54 billion for the corresponding period last fiscal. Total income for the quarter ended March 31, 2001, was also lower at Rs.60.78 billion, as against Rs.61.87 billion in the corresponding period last fiscal.
The net profit for the year ended March 31, 2001, was at Rs.26.46 billion as compared with Rs.24.03 billion in the corresponding period last fiscal. Total income for the year ended March 31, 2001, is at Rs.258.12 billion as compared to Rs.185.26 billion in the financial year ended March 31, 2000. Analysts are of the opinion that the pressure on the margins have come in due to the high cost of inventories which were piled up prior to the falling prices. The company has explained the pressure on the margins by stating that the price of major feedstock increased sharply during the year under review. And as against this, the rise in product prices lagged the increase in feedstock costs leading to overall pressures on profitability.
And in RIL, the company has declared a dividend of 42.5 percent for the year ended March 31, 2001. It is also hiking the limit of FII investment from the existing 24 percent to 49 percent. The company is also planning to extend the program for buyback of equity shares for the year 2001-2002, for an amount not exceeding Rs.11.00 billion and upto a maximum price of Rs.303 per share. Manufactured exports including deemed exports more than doubled to Rs.29.60 billion from Rs.14.78 billion. Total Exports including merchant exports of petroleum products were Rs.52.37 billion. Total exports from RIL and RPL crossed $2 billion at Rs.93.70 billion. This ranks Reliance group as by far the largest exporter from India. The EPS of RIL now stands at Rs.25.1 on equity share capital of Rs.10.54 billion.
What is also interesting to note is that RIL contributed Rs.42.77 billion to the national exchequer in the form of various taxes. But more than the results, the news which caused a flutter in the market was the huge foreign currency term loan. Reliance believes in doing everything in the superlative.
Biggest, largest, best are normally the superlatives which are almost always associated with Reliance. And so keeping up with this tradition, RPL concluded the India’s largest ever syndicated foreign currency term loan deal. This $750-million foreign currency loan is in addition to the proposed ADR/GDR issue of RPL expected to be completed in the next couple of months. The company has stated that it requires the money for capital expenditure and general corporate purposes.
The biggest advantage for RPL is that it is getting this loan with an average maturity of five years around six percent a year in dollar terms and this financing is considered to be a new benchmark in the Indian corporate world. The pricing of the loan compares to yields of 6.5 percent prevailing in secondary markets and has a spread of 175 basis points over quasi-sovereign syndicated loans.
Analysts say that this is prudent funding as repayment with Reliance has never been a problem since RPL had a very good quantum of foreign exchange earnings due to its exports. This is one of the reasons that the coupon rate is less and the foreign exchange risk is also lower.
Anyway, this deal is fully underwritten by leading banks, including ABN Amro, Grindlays, Bank of America, Citibank, HSBC, Stanchart, and Toronto Dominion. And this deal, which has an international BB credit rating, represents the largest ever offshore financing in a single tranche in India and is more than three times the size of any previous transaction in the country.
Infact it is interesting to note that its domestic debt credit ratings have recently been upgraded from BBB+, the lowest investment grade rating, to AA by credit rating agency Crisil.