Untied financing tightens Indian links

In September 2008, BBVA signed a US$300mn-term facility for India’s Reliance Industries. The facility was closed under the Italian export credit agency (ECA) Sace’s untied guarantee export financing credit structure.

The deal is the biggest untied facility issued by Sace in Asia, and third largest signed worldwide to date.

The financing was raised to cover Reliance Industries’ capital expenditures.

As the financing is an untied facility, it allows the borrower a high degree of flexibility, in that Reliance did not need to assign specific commercial agreements to it and can use the funds as and when it needs to.

The facility carries a tenor of up to 10 years, with one year of disbursement included, and 20 semi-annual installments. Sace provided insurance for 80% of the political and commercial risks linked to the facility.

BBVA funded US$100mn of the facility, with the remaining funds raised by additional lenders DZ Bank and Bank of Tokyo-Mitsubishi UFJ.

Commenting on how BBVA won the mandate, David Albagli, head of global trade finance, Milan, at BBVA, comments: “The existing relationship with Reliance, together with pricing and flexibility to keep standard loan clauses in the Sace facility, was the key to securing the mandate.”

He explains that one of the key challenges in putting together the deal was the requirement to structure it as similarly as possible to previous existing syndicated bank loans granted to Reliance Industries that had not featured ECA backing. Therefore the lenders had to be flexible in terms of the financing structure implemented, and include standard loan clauses not always associated with ECA financing.

The deal is also significant in helping BBVA consolidate its foothold in the Indian market.

“India represents an important market for BBVA and we will definitely follow new Sace untied deals in case further opportunities arise. However in the present market situation, Sace is prioritising traditional export intervention, leaving untied facilities as a residual instrument to support Italian market internationalisation,” Albagli adds.

The lenders also had to comply with strict Indian laws and had to efficiently arrange and close the deal before the growing financial turmoil could potentially throw the deal off course.

Reliance Industries is one of the most important groups in India, and the country’s leading player in the oil sector. It is also India’s largest private sector company and has a turnover of US$34.7bn as of March 31, 2008. It is the first private sector company from India to feature in the Fortune Global 500 list of the world’s largest corporations.

Deal Information

Borrower: Reliance Industries
Amount: US$300mn
Mandated lead arranger: BBVA
Additional lenders: DZ Bank; Bank of Tokyo-Mitsubishi UFJ
ECA: Sace
Law firm: Linklaters
Tenor: Up to 10 years
Date signed: September 2008