Why is Reliance Jio looking to raise $750 million from the offshore loan market?
Answer
Answer
At the outset, telecom and digital is an industry that is extremely capital intensive and cash guzzling. That is why Reliance Jio is planning to raise $750 million via the offshore syndicated loan route. A consortium of 7 banks will jointly underwrite the total loan facility. The main purpose of this offshore loan is to bankroll the future capital expenditure needs of Jio, considering the big shift to 5G likely to accelerate in the coming 3 years.
The consortium of 7 banks financing this syndicated offshore loan include Bank of America, Credit Agricole, HSBC, State Bank of India, MUFG, Mizuho Bank and SMBC. The last 3 are Japanese Banks. In terms of loan structure, the syndicated loan will be a 5-year offshore loan facility. While further details on pricing are not available, market feedback suggests a spread of 120-130 bps above the benchmark Secured Overnight Financing Rate (SOFR).
Regarding the usage of funds, a major part of these funds proposed to be raised through the offshore loan route will help Jio bankroll the first wave of 5G network rollouts. The 5G rollout is apparently likely to be very capex intensive. That is where a stable low cost international loan would fit in. Jio will also refinance some of its short-term bridge loans raised earlier through commercial papers and other short term instruments.