The state-run gas transmission firm Gail (India) Ltd plans to prepay an expensive Rs 500 crore (Rs 5 billion) Asian Development Bank loan by raising debt from domestic market through a bonds issue in January.

"We have recently prepaid Rs 500 crore of ADB loan and an equal amount would be prepaid in January," Gail sources said.

Gail had some years back borrowed about Rs 1,180 crore (Rs 11.80 billion) from ADB to fund capital investment projects. At the beginning of the fiscal, the total outstanding towards ADB was Rs 1,066.62 crore (Rs 10.67 billion).

"The effective rate of interest that we pay in dollar terms to ADB comes to just over 7.5 per cent. Against this, we raised Rs 500 crore very recently at 6 per cent coupon rate," sources said.

Besides ADB, Gail has also swapped Rs 261.91 crore (Rs 2.62 billion) loan from Japan Bank for Internatinal Co-operation with credit from indigenous banks.

The switching over to cheaper loans from domestic banks has enabled Gail to lower its debt cost and this has helped improve the company's bottomline.

"Besides the Rs 500 crore bond issue for pre-paying the ADB loan, we also intend to borrow an equal amount from domestic lenders and another $100 million foreign currency loan for the ongoing projects," sources said.

The debt-equity ratio of the gas major is currently around 0.2:1 as a result of which it enjoys a high credit rating. Gail intends to leverage this strength with the banks to raise loans and low rates of interest for major projects such as the national gas grid and its diversification into petrochemicals.