The Hindu Business Line : Indian cos raise $10 b via ECB route in 9 months

INDIAN companies raised nearly $10 billion (or about Rs 45,000 crore) through external commercial borrowings (ECB) in the first nine months of the current fiscal, according to data provided by the Reserve Bank of India.

This was just a shade lower than $10.22 billion raised in the corresponding previous period.

Some 426 companies, including prominent ones such as HDFC, IOC, Tata Steel, IDBI, Reliance Industries, and Bharti Televentures, besides several new ones raised money from overseas during this period.

The past nine months have seen companies borrowing at a hectic pace from domestic lenders too. Bank loans in the country have risen by Rs 2,70,000 crore during this fiscal so far.

Domestic rates have started inching up. Commercial paper rates have moved to a band of 6.65-8.50 per cent from a 5.59-7.5 per cent just three months back.

But interest rates have gone up in foreign markets too. So why do companies raise money overseas?

Mr Conrad D'Souza, General Manager (Treasury), HDFC, said that companies borrow abroad for various reasons.

"Diversifying the funding base, acquiring companies abroad, and import of capital goods, besides the possibility of lower borrowing costs, are among the factors that one has to consider while borrowing abroad."

He added that ECBs were generally available for a longer term of more than five years, whereas local money of that tenor was usually difficult to come by.

However, in the case of ECBs companies also had to consider the implications of the withholding tax, which ranges between 10 per cent and 20 per cent.

"Whether to borrow outside or locally is a call that we have to take at different points of time depending on the exchange rates, the forward premium, the local rates, and our needs."

Mr N. Sampath Kumar, Executive Vice-President (Financial Institutions Group), IndusInd Bank, said: "Rates have been going up in the local market also.

But on a fully hedged basis, resources raised outside may be a bit more costly or on par with what you get here."

There is still considerable appetite for Indian paper among overseas lenders. The India growth story has a lot of takers outside. A top corporate banker said: "The market is still in expansion mode and everybody is looking at fresh capital. Indian paper is seeing good demand. Even now there is an arbitrage of about 0.5 per cent on external borrowings for good companies."