RIL taps Taiwan to raise 1st Formosa bond of $200 million

MUMBAI: After Dimsum, Sushi, Samurai, Rolex, Kangaroo, Bulldog or even Dragon it's now the turn of Formosa bonds. Reliance IndustriesBSE 0.56 % - India's savviest as well as the largest borrower overseas - has just raised $200 million through a fresh bond issuance in the hottest bond market in Asia Taiwan.

According to to multiple sources directly involved with the transaction, RIL has raised 20 year debt paper on Monday, the first from India Inc to do so. Incidentally, RIL will also be the first Asian energy company to tap the Formosa market.

A Formosa bond is issued in Taiwan but denominated in a currency other than the New Taiwanese dollar. They are issued by the Taiwan branches of publicly traded overseas financial institutions and to be traded must have a credit rating of BBB or higher.

The name Formosa refers to an alternative name for the island of Taiwan and was chosen as the result of a contest held in September 2006 by the Taiwan's market regulator, the Financial Supervisory Commission (FSC). 15 names were suggested, intended to reflect special characteristics of Taiwan; and the suggestions ranged from C-Wang Bond to High-Tech Island Bond. The Formosa moniker was the most popular choice, with 5,776 votes, or 57.16% of the total cast.

Sources add, for RIL this was a new market to tap. Moreover there are other advantages too. "With higher issuances volumes in this market has gone up. So has the liquidity. Often issuers get better pricing compared to traditional dollar bond markets. Moreover, one has the flexibility to repay any time after 5 years without any incremental cost," said an official in the know.

The pricing for RIL's inaugural bonds have also been very attractive at Libor plus 170 which effectively translates to around 5%. Morgan Stanley, Deutsche Bank and HSBC were the lead bankers in the issue.

RIL spokesperson did not comment to ET's questionnaire sent on Monday late night till Tuesday noon.

This calendar year, RIL has already raised close to $2 billion though bond sales, including a 30 year "perpetual" issue - another first for an Indian corporate in February.

Global bond market participants say the Formosa market too has had an exciting start this year with international issuers - some debuting, many returning - have been flocking to Taiwan renminbi market to diversify their offerings. In comparison, Hong Kong's traditionally dominating dim sum market has only seen a handful of issuances lately. But the market is relatively new, having started in March 2013. The first Formosa bond issue is a RMB 1 billion 3-year note by CTBC bank.

Global banks and telecom companies ranging from JP Morgan, AT&T have all in recent times tapped the Taiwanese market to raise global financing. But as the total bond issuance of 14.1 billion yuan last year accounted for just 3 percent of Hong Kong's yuan-denominated dim sum bonds, the regulator FSC recently unveiled a series of deregulatory measures that aims to help Taiwan develop into a regional offshore yuan hub, as well as boost the bond market and the nation's underwriters.

Historically, Formosa bond yields have been substantially lower than yields of Dim Sum bonds issued in HK, but have recently converged to Dim Sum bond yields.

The demand for Formosa bonds could reach 300 billion yuan ($48.36 billion) from 14.1 billion yuan, with domestic life insurance companies set to be the biggest buyers, according to estimates by UBS.