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Friday, Aug 10, 2007
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Infrastructure Markets - Stocks Corporate - Overseas Borrowings
Vidya Bala Industry officials and infrastructure sector experts don’t think the curbs imposed by the Finance Ministry on external commercial borrowings (ECBs) may make much of a difference to the sector. Nor do they think the expected rise in interest costs will pose much of a problem. Mr R. Rajagopal, Chief Investment Officer of DBS Cholamandalam Mutual Fund that has just launched an infrastructure fund, did not think that infrastructure funding would be affected. He said, “The funding for any infrastructure is always a mix of debt and equity. One need not worry unduly about interest costs impacting the project or returns, because that is already factored into the mix. People will raise an appropriate amount of debt, based on interest costs. This is why I do not feel that interest costs will impede infrastructure growth.” ‘Macro perspective’
Mr Rajagopal added, “In addition, many bankers have said that interest rates have peaked. That shows that there are unlikely to be further rate increases. The velocity (at which rates may come down) is, however, difficult to predict. If this measure reduces domestic liquidity, it will be positive from a macro perspective.” Mr Amitabh Das Mundhra, Director, Simplex Infrastructures, a mid-cap construction company, said that the impact on their own company would not be large as they were not dependent on the ECB route. “Even for many of our overseas projects we have other strategic line of credit available,” he said. He, however, felt that development projects – especially those in the Build-Operate-Transfer (BOT) segment, where large borrowing at low cost is necessary – may be hurt. He said he expected interest rates to go up with more companies now required to borrow locally. Micro actions
Mr Gopal Sarma, a senior official at Feedback Ventures, an infrastructure consultancy firm, said, “The Government had already curbed ECBs for integrated townships. So, there is no new impact on real estate. As for infrastructure projects, local institutions such as IDFC fund most projects and very few are funded by ECBs. Funding has never been an issue; it has always been an issue of finding the right projects to fund. There could be some impact on those using ECBs for their working capital requirements.” However, Mr Sarma was more critical of what he termed as micro actions without looking at the macro picture. He said, “The recent moves appear to be putting 1,000 bandages on 1,000 cuts. One year down the line, assuming the situation stabilises, I see difficulty in these 1,000 decisions being reversed.”
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