A Global Business

In mid-2011, when Europe was in the grip of its sovereign debt crises, Reliance Industries (RIL), India’s largest private firm by revenues, reached out to some international banks to help it raise $2 billion for its petrochemical projects at four locations, including Jamnagar.

Though most borrowers were facing headwinds because of the euro zone crisis, RIL was able to get support from Citibank and large German lending institutions such as KfW. Four German banks — for the first time — joined the bandwagon to finance the company. Citibank was at the forefront. “It was important for us to repose our commitment to RIL, particularly when there is uncertainty,” says Rahul Shukla, head of corporate banking in India. RIL is one Citibank’s top global relationships, he adds.

RIL wanted to extend the maturity profile of its long-term debt in a cost-effective manner, while diversifying its investor set at the same time. RIL does not look at domestic players for comparison in any deals; instead, the firm compares itself with global leaders in its segment.

Shukla’s only worry was the potential implications for RIL in doing a deal by non-market standards. “We have been to able to provide initial underwriting within the criterion,” he says. “Then we were able to help with syndication. Many banks participated in the transaction.”

On 7 May 2012, RIL signed a $2 billion loan agreement in two currencies — $1 billion and `760million — with nine banks covered by Euler Hermes Deutschland AG at Berlin. It was a slightly complicated transaction: of the total, $800 million and `760 million was in floating rate tranches, and the rest was a fixed rate loan.

In a a syndication of this nature, banks usually go in for floating rates, while other institutional investors go in for fixed rate loans. The full loan is available for drawdown until November 2015. The margin over the underlying reference rate for floating rate tranche is 1.1 per cent annually.

The facility had been among the largest underwritten by Euler Hermes in recent years and, for the first time, accorded a corporate borrower — RIL — a ‘Better than Sovereign’ rating. That rating is testimony to RIL’s strong credit standing in the international markets. Despite challenging financial market conditions, the deal was oversubscribed by 50 per cent.

Shukla says this was a benchmark deal for both his bank and RIL. The facility has a maturity of 13.5 years, among the longest in the Indian market. The German government provided $200 million in fixed rate lending at the commercial interest reference rate in this deal, which is one of the largest in the category. KfW and Ipex Bank arranged the Euler Hermes cover.

It was a global deal; Citi had relationship managers from India and product specialists from across the world participating in the action. “We were able to link all our global offices to deliver — in time, in size, matching the tenor and rate expectations of our client while ensuring a successful syndication,” says Shukla, who has spent 21 years in corporate banking, adding Citibank has done some innovative cross-border transactions as well as some daring executions. So, if you are looking for long tenor financing, go west.    

(This story was published in Businessworld Issue Dated 24-12-2012)