The Hindu Business Line : S&P upgrade to help cos tap larger investor base

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Chennai Jan. 30 Top rated companies and banks will be able to borrow a bit cheaper, following the rating upgrade of the country to "Investment grade", given by international rating agency Standard & Poor's. Their borrowing cost could come down by about 0.25 percentage points, according to some bankers.

But, it is not the lower cost that may be the real benefit. It's the new set of investors who may put their money here.

According to Mr Conrad D'Souza, Treasurer, HDFC, "The investment upgrade may have only a marginal impact on pricing of overseas borrowing since many Indian companies are already able to get pricing at those levels now. What the S&P upgrade will do is to help companies tap into a larger investor base. A number of institutional investors are limited by their guidelines which don't allow investment in below-investment grade markets."

Strong fundamentals

Mr Sanjeet Singh, Vice-President, ICICI Securities, said, "This is the first time the country is getting investment grade rating from S&P. This is an acknowledgement of the strong fundamentals of the Indian economy and should translate into improved capital inflows."

External commercial borrowings by Indian companies have increased so rapidly that the government has hiked the annual limit for such borrowings to $22 billion from $18 billion recently. Indian paper has had a warm reception overseas. Banks too have been capitalising on this trend. For instance, ICICI Bank, which approached the overseas market to raise $2 billion, got orders of about $8 billion, reflecting the underlying demand to participate in the Indian growth story.

If Indian companies were able to get so much money already (without the rating), would the new rating make much of a difference? Mr Sanjeet Singh said that Indian companies have been able to raise money, and at cheaper rates, partly due to excess liquidity in global markets, besides of course improving fundamentals and strong economic growth. The rating may not make a difference immediately — but should liquidity become tighter and market conditions become difficult, the "investment grade" rating would definitely help, he said.

To Help free biz

Some bankers said that the investment rating would also help "free" their business overseas. Overseas regulators in some countries would now allow branch expansion with the better rating.

And the difference in costs (a cheaper borrowing by 0.25 percentage points, on the average) makes a considerable difference in international markets where net interest margins are in the 1 to 1.5 per cent range.

More Stories on : Overseas Borrowings | Credit Rating

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