RIL to raise $800 million from K-Exim for Reliance Jio

In order to finance the purchase of telecommunications equipment from vendors such as Samsung in Korea, Reliance Industries Limited (RIL) will be raising $800 million from Korea EximBank (K-Exim). The much-awaited rollout of 4G services by Reliance Jio, RIL’s telecommunications arm, is scheduled for the first quarter of 2015.

It is believed that K-Exim will fund about 60% of the amount while standing guarantees for the remaining. The rest will be bankrolled by a number of global banks, three each from Korea and Japan, including ANZ and HSBC. The agreements expected to be signed within the next 2 days.

Other International Financiers

This will be the first international financing for the company after it borrowed $1.5 billion through external commercial borrowing (ECB) for its spectrum payments in 2010. RIL will soon be refinancing that funding at well. The new tenure for$500 million will be 6.5 years and for $1 billion will be 5.25 years. It will be at spreads that are lower than the previous loans.

Between 2012 and now, RIL has been responsible for approximately 14% of India’s exports. In addition to this, it has raised more than $11 billion from foreign countries through bonds besides funding from export-import banks and ECBs. A major part of this funding is essentially to finance RIL’s capital expenditures for large expansions of its petrochemical capacity.

RIL’s longstanding Relationship with Export Credit Agencies

In addition to being the country’s largest overseas borrower, RIL is also one of the most active Indian corporations in tapping Export Credit Agency (ECA) financing routes, which offer cheaper credit than commercial banks for long tenures. The latest financing with K-Exim for instance is believed to be for 12 years.

Taking into consideration RIL’s credit ratings and its strong balance sheet, ECAs from the United States, Korea, France and UK have frequently provided funding during 2013. As a result of this, the company has been able to lock in capital commitments for as much as 14 years at extremely low rates. On an average, a fixed-rate ECA offered by the US government comes with an interest rate of 3.5% for a 10-year dollar-denominated bond.

Reliance Jio’s Roll-Out Plans

In a note on September 16th, analysts from Credit Suisse, Sunil Tirumalai and Chunky Shah, wrote, “RJio has completed installation of 32,000 LTE (Long Term Evolution) base stations nationwide. The pace of rollout, importantly, has picked up sharply to 6,500-7,000 per month. It seems the company and the rollout partners are maturing in the rollout process.”

Reliance Jio has been working towards the 2015 launch of its 4G services and is expected to invest as much as INR70,000 crore in this regard. It is believed that RIL will be pumping in about 42% of that amount over the next two years. Spokespersons at RIL said that Jio will initially cater to 5,000 towns and cities, covering more than 90% of urban India. In addition to this, it will also launch its services in over 215,000 villages in India. Their overall target is to reach out to over 600,000 villages.

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