REC Limited has closed the largest-ever sale of Yen bonds by an Indian company raising nearly Rs. 3500 crore (JPY 61 billion) from Japanese and global investors , according to stock exchange disclosures.
ET had reported on Monday that REC, one of the largest state-sponsored infrastructure financiers, would be launching a sale of Yen-denominated bonds this week.
The bonds have been issued in three tranches with tenors of 5 years, 5.25 years and 10 years respectively. On the shorter tenor bonds the coupon REC Limited will pay bond holders will be 1.7% and on the 10-year bond it will be 2.2%.
Currency hedging costs will be additional and will be borne by REC Limited which will take the actual interest burden on the bonds to around 6%. That’s still a 150 basis points or 1.5% cheaper than what the company would usually pay to raise money in the debt market locally.
Japan has maintained negative interest rates due to economic contraction in that country. It expects this will encourage people to borrow and thereby stimulate economic activity. This means borrowing in Yen could be cheaper for international companies looking to raise money in that currency. But Yen investors are choosy and typically back A-rated companies.
REC has a credit rating of BBB- but investors would have derived comfort from the company’s parentage, as the Government of India is its majority shareholder.
The only other Indian company to raise funds through yen-denominated bonds in the past five years is Exim Bank.
Berkshire Hathway and Korean Exim Bank are amongst companies that have successfully tapped the yen bond market.
Mizuho, SMBC, DBS Bank and MUFG were investment banker for REC’s bond offering.
The successful bond issue could open a new avenue of funding for the company, originally a power sector financier, which has now diversified into financing of airports, roads, ports and electric vehicles
REC Limited has a loan book of close to Rs. 5 lakh crore.
The company posted its highest quarterly profit of Rs. 3,773 crore in the July-September quarter of the current financial year. It has yet to report December quarter earnings.
