Reliance Industries Seeks $1 Billion Loan to Expand

Reliance Industries Ltd., India’s biggest company, is seeking to borrow $1 billion to fund its expansion projects, three people with knowledge of the deal said. The company may hire banks to arrange the five-year loan in the next couple of weeks, said the people, who declined to be identified because the information isn’t public. Paresh Chaudhry, Reliance’s Mumbai-based spokesman, didn’t return phone calls from Bloomberg News seeking comment.

Reliance is building an oil refinery in the western Indian state of Gujarat that will create the world’s biggest such complex. The company, whose share price has fallen this year, will complete the refinery this year to process oil into gasoline, diesel and naphtha for exports to the U.S., Europe and the Middle East.

``The expansion would help Reliance improve its refining margins,’’ said Mumbai-based Vinay Nair, an analyst at Khandwala Securities Ltd. ``The stock may rise by 15 percent by the end of the year even after taking into account the debt it has to incur to fund the expansion.’’

Reliance shares fell 20 percent this year, compared with the 24 percent decline in the benchmark Sensitive Index. The stock gained 127 percent in 2007.

Chairman Mukesh Ambani earns more from each barrel of oil than overseas refiners by processing cheaper, lower grades of crude at a plant two days away by ship from Middle East oil fields. Reliance earned $15.5 from processing a barrel of oil into fuel in the quarter ended March 31, compared with $7 for a plant in Singapore, the company said on April 21.

Investment Plans

Ambani, the second-richest Indian and the world’s fifth wealthiest according to Forbes magazine, needs higher profits to fund $24 billion of planned investments in chemical projects in the gas-rich Middle East and increase oil and gas exploration to benefit from record energy prices. The expansion will help Reliance triple earnings in the next five years.

Reliance’s profit rose 24 percent to 39.1 billion rupees ($911 million) in the three months to March 31. Reliance operates a 660,000-barrel-a-day refinery at Jamnagar in Gujarat. It is also setting up a 580,000-barrel-a-day plant under unit Reliance Petroleum Ltd. The combined facility will be the world’s biggest refinery, according to Reliance.

The company raised $500 million from a five-year loan in September, paying interest that’s 0.39 percentage point above the London interbank offered rate, data compiled by Bloomberg show.

Credit-default swaps on Reliance Industries declined about 8 basis points at 11:00 a.m. in Hong Kong to 212.5, according to BNP Paribas SA’s prices. That means it costs $212,500 a year to protect $10 million of Reliance’s debt from default for five years.