What is The Matter With The New Reliance USD Perpetual (RILIN5.875% NC5Y) ? (amended)

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It is 94/95.50 this morning so I thought I would write about it.

We, in Singapore, like to believe that bonds cannot go wrong especially for bonds like Reliance Industries, a good proxy for the Indian government and same rating too.

Who bought Reliance Industries USD 5.875% Senior Perpetual NC5y ?

Looks like it could be speculators

Books at ~3bn with 170 orders

Asia: 53%
Europe: 27%
US: 20%

PBs: 53%
Institutional: 47%

ISSUER:                                           Reliance Industries Limited
ISSUER RATINGS:                         Baa2/BBB (stable by Moody’s / positive by S&P)
EXP. ISSUE RATINGS:          Baa2/BBB (Moody’s/S&P)
TYPE:                                               US$ Senior Perpetual Securities
STATUS:                                         Senior Unsecured
FORMAT:                                          Rule 144A / Regulation S
SIZE:                                                   US$ Benchmark
TENOR:                                          Perpetual Non-Call 5 years
COUPON:                                          5.875% fixed, non-deferrable, (s/a 30/360)
ISSUE SIZE                                  USD 800 MIO
OPTIONAL REDEMPTION:        5 February 2018 and every distribution payment date thereafter
COUPON STRUCTURE:               5.875%Fixed for life, payable semi-annually in arrear
COUPON DEFERRAL:                  Not deferrable
EARLY REDEMPTION RIGHTS:        At par, in case of Tax Event
DETAILS:                                         US$200K/1K denoms; SGX Listing; New York law
USE OF PROCEEDS:                      For ongoing capex in the infrastructure sector in compliance with RBI and India regulations

It looks like MAS is not going to go to the rescue for this one even though its SGX listed. I wonder if SGX bothers to check on deal feasibility or not these days.

Main Cons
Fixed for Life so even if rates go UP, there is no recourse for PERPETUITY.
Non Deferrable coupon so the company can opt to pay without going into default.
May not be significant to some, but the investor is short a series of call options for every coupon after 5 years which means that Reliance has the option to buy the bond back at 100 even if it trades at a premium and that is a major boo-boo if you think about it then (my portfolio manager friend wants me to put this down).

Pros
Senior structure which reverts to senior debt status when in default, second only to secured debt holders.
Non Deferrable coupon which takes precedence over their other liabilities and they HAVE to pay each coupon.

Well, it is not hitting the margin calls yet. We could still buy the shares as a hedge because the company would be making a cool USD 40 mio profit if they bought the bonds back at 95.00 now.

I would say I am tempted to buy some but I will not because I believe if rallies only last until something gives and margin calls get triggered for the slate to be wiped clean. And do not be surprised or be babies about it because you are only 1 vote for the central bank and certainly not too big to fail. Just look at the 30Y Singapore Government Bond now  ? It is 99.80  after opening this year at 107 and its AAA  too !

Personally comfortable with perpetuals over 7% even if this is a senior one.

Category : Market, Op-Eds