Reliance Industries is planning to raise Rs 15,000 crore through local currency bonds. If this plan to sell bonds is completed, it will be the company’s biggest domestic bond sale. This information has been given in a Bloomberg report. According to the report, this will be the first bond sale of Reliance Group after 2020 in the domestic bond market.
Why Reliance needed Rs 15,000 crore?
Recently, Reliance has included retail investors like Qatar Investment Authority and KKR & Company in the business to expand the consumer business. It is believed that for this reason, the company has needed to raise funds through local bonds.
What is a Local Currency Bond?
Local currency bonds are also called domestic currency bonds. These are debt security bonds, which can be converted into local currency only. That is, they can be converted into the currency of the country in which these bonds are issued.
These are different from foreign currency bonds. The value of bonds issued in foreign currency is in the currency of that country and its interest is also calculated according to the currency of that country.
In this, bond buyers have to follow the credit risk of the company and the changes in interest rates. Generally, government, corporate and other institutions issue local bonds to raise funds.
How Companies Raise Funds?
There are various ways for a company to raise funds. the choice of way to raise money depends on the company’s stage of development, industry, and financial needs.
1. Equity Financing:
- IPO (Initial Public Offering): Companies can go public by offering shares to the public through an IPO. This provides access to a large pool of capital from investors in exchange for equity.
- Private Placements: Companies can raise capital by offering shares to a select group of private investors. This method is often used by startups and private companies.
- Venture Capital: Startups and high-growth companies often seek funding from venture capital firms in exchange for equity. Venture capitalists provide not only capital but also expertise and guidance.
- Angel Investors: Angel investors are individuals who invest their personal funds in early-stage companies. They also provide mentorship along with the capital.
2. Debt Financing:
- Bank Loans: Companies can borrow money from banks, financial institutions, or online lenders. This involves repaying the principal amount along with interest over a specified period.
- Bonds: Issuing bonds allows a company to raise funds by selling debt securities to investors. Bondholders receive periodic interest payments and the return of the principal amount at maturity.
3. Strategic Partnerships and Alliances:
Companies can form partnerships with other businesses to access capital, resources, and expertise. This may involve joint ventures, licensing agreements, or strategic collaborations.
4. Government Grants and Subsidies:
In some industries or regions, governments offer grants, subsidies, or tax incentives to companies, such as research and development or environmental initiatives.
5. Retained Earnings:
Companies can reinvest profits back into the business rather than distributing them to shareholders. This is a form of internal financing.
6. Asset Sales:
Companies can raise funds by selling their assets, such as real estate, equipment, or intellectual property.
Foreign currency bonds are valued in the currency of the issuing country, local currency bonds can only be converted into local currency.
Governments, corporations, and other institutions issue local currency bonds as a means of raising capital from domestic markets.
Bond buyers assess factors such as the creditworthiness of the issuer, interest rate movements, and economic conditions in the country.
No, local currency bonds are not subject to currency exchange rate fluctuations since they are denominated in the same currency as the country of issuance.
Changes in interest rates impact the valuation of local currency bonds. When interest rates rise, bond prices may fall, and vice versa.
Issuers benefit from accessing domestic capital at potentially favorable interest rates, while investors can invest in instruments denominated in their local currency, reducing currency risk.