The Hindu Business Line : Easy money

For all the talk of the baneful effect of interest rate hikes on companies, borrowers with healthy track records and growth prospects face no dearth of cheap money. This is especially true of companies that have gone shopping for capital abroad and come away smiling. Data for the current year show just how popular Indian corporates have been with global lending agencies, raising Rs 35,135 crore through equity, debt and hybrid issues. Significantly, this amount was raised in just five months compared to Rs 34,375 crore over the whole of the previous calendar. Of the total so far, almost Rs 29,000 crore was debt, through foreign currency convertible bonds (FCCB); by contrast, 28 equity offerings raised Rs 6,898.84 crore. Indian companies, the data suggest, were the biggest borrowers through the FCCB route in Asia. With more companies queuing up, this fiscal may well end with more than $15 billion or Rs 67,500 crore from global sources in the corporate kitty. More than anything else this reflects the success of reforms that have left their mark on both the corporate sector and the domestic financial system.

Though it would be tempting to point to the high growth rates of the past two years for the record fund-raising programmes, a more plausible explanation lies in the confidence that global creditors have in companies maintaining high levels of growth. That many firms are also in compliance (in varying degree though) with global standards of management, financial and auditing practices has contributed in no small measure to the ready acceptance in the global markets of the debt instruments; data show a higher proportion of bond issues than equity by companies. This a far cry from the 1980s when only a clutch of PSUs and financial institutions, and one or two private companies floated bond issues, all with sovereign backing.

Indirectly, the reforms have also affected the domestic financial system by inducing changes in the quality and type of services offered. The low interest rates that helped domestic borrowers may be over, but armed with a variety of debt instruments, Indian companies need not fear interest rate hikes as much as they used to. Domestic financial institutions (FIs) have to spruce up their services to retain customers while eyeing margins. With inflation on the rise, the RBI will use monetary methods to curb prices; hardening of interest rates will drive up the cost of domestic funds. Already fears of the "export of domestic markets" through the ECBs has prompted SEBI to permit listed companies to raise funds in the domestic market through the new Qualified Institutional Placement route without pre-issue filings with the regulator, and with simplified procedures. Unlike in the past, the ECB route is also inspiring time- and cost-effective innovations in the domestic market.

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