The Hindu Business Line : Borrowing abroad seen attractive despite rising dollar

Mumbai, May 18 The rising dollar may not impact overseas borrowings by Indian corporates, as most have hedged their forex fully. The current rupee depreciation is short-term and structurally nothing has changed for the domestic currency, which is set to gain gradually, said bankers.

In fact, if a company has hedged its External Commercial Borrowing (ECB) against currencies like the Japanese yen or Swiss franc, it stands to gain, as the dollar has gained against these currencies as well.

According to figures released by the Reserve Bank of India, in the just-ended fiscal (2007-08) 625 companies borrowed nearly $31 billion overseas, against $25 billion in the previous fiscal.

In March alone, about 55 companies borrowed nearly $4.47 billion, according to the latest RBI data on ECB.

According to Mr P. Mukherjee, President, Treasury, Axis Bank, there are benefits for corporates that have hedged against currency fluctuations.

He explained, “If we assume that a company has raised US dollars and then gone into different currency through interest rate swaps, now the company will be obliged to repay in yen or Swiss franc.

“With the US dollar rising against these currencies, it is possible that such companies may have to pay less on the repayment of their External Commercial Borrowings.”

Dollar loans cheaper

Mr Hitendra Dave, Co-head, Global Markets, HSBC said it is unlikely that corporates would review plans to raise ECBs due to the rising dollar. “The structural view of the rupee has not changed. It will gradually gain. In any case, the interest rate differential is so high that ECBs would continue to be attractive. And the tenor of the overseas borrowing is usually three-five years, so corporates would continue to borrow overseas,” he said.

According to Mr Sundeep Bhandari, Regional Head, global markets, South Asia, Standard Chartered Bank, “If the ECB and the forex are hedged fully then there is essentially no impact. The LIBOR has come down, while in India the interest rates are still firm. Despite wider credit spreads than 18 months ago, due to the global sub-prime crisis, Indian borrowers would continue to look at overseas borrowing.”

Dollar revenues

Corporates that have a natural hedge in the form of dollar earnings will have no need to re-look their overseas borrowings, said Mr K.G. Vishwanath, Senior General Manager, MIS and Investor Relations, Jet Airways. “We have a natural hedge because 20 per cent of our revenues are in dollars. In any case, borrowings in dollars are much cheaper than rupee loans, even though the credit spreads overseas have widened,” he said.

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