The Hindu Business Line : $ 6-b ECB money likely to flood markets — Cos seeking 'change in lender profile, lower interest cost'

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$ 6-b ECB money likely to flood markets — Cos seeking 'change in lender profile, lower interest cost'

N.S.Vageesh
Suresh Krishnamurthy

BANKERS beware! Your carefully laid business plans for 2004 may come unstuck.

A number of your clients appear intent on ignoring rupee funds and are instead, queuing up to borrow from overseas markets.

Since January, about 25 companies have announced plans for raising money through external commercial borrowings (ECBs). These aggregate about $ 6 billion or Rs 27,000 crore.

Or, to look at it in another way, that was what was added as bank loans during the first seven months of this fiscal. To put it in perspective, the sum proposed to be borrowed is nearly thrice higher than the sum of $ 2.25 billion raised in 2003.

Importantly, companies such as BSES, Reliance, IDBI and Indian Hotels have already closed deals amounting to a billion dollars. NTPC concluded its deal on Thursday, while that of Punjab National Bank is in advanced stages.

According to Mr Arun Kaul, General Manager, Treasury, Punjab National Bank, the process for raising $ 50 million with a greenshoe option for another $ 30 million has already started and would take four to six weeks to conclude.

Not all deals will come through immediately. Many could extend into the second quarter of the next fiscal. For instance, Zee Telefilms is getting shareholder approval only on March 25 after which the process has to be initiated. Similarly, the ECBs of Bharti Televentures, Haldia Petrochemicals, and National Hydroelectric Power Corporation (NHPC) may happen later.

The NHPC's Chairman and Managing Director, Mr Yogendra Prasad, said the company would wait till the elections were over before proceeding with overseas fund raising. NHPC has already raised ECB equivalent to $50 million in Japanese yen this fiscal.

Companies are going abroad for various reasons. For some such as NTPC, a triple-A rated borrower, with no shortage of willing domestic lenders, it is a means of diversifying the lender profile and building brand outside as much as fine-tuning into low rates. NTPC's ECB of around $200 million for capacity expansion, is being done outside because "Asian markets are friendly now!" a top company official said.

For some others such as Essar Steel, a large steel producer with a large baggage of overdue loans, the overseas borrowing is the simplest way to axe interest costs. According to the Essar Steel's Director - Finance, Mr V.G. Raghavan, the company's interest cost of Rs 450 crore would come down by half, if it got permission to borrow $500 million.

He says the debt restructuring mechanism of Indian lenders did not allow for a reduction of rates below 14 per cent. Terming ECBs as the best bet for the medium term borrowing of steel companies, he added that Essar which exports around $200 million of steel, has to compete with foreign manufacturers who borrow at less than 4 per cent. "We need to be allowed to borrow in the ECB route to be competitive," he says.

That's a cry that could well be echoed by a number of smaller companies too. A November 2003 circular of the RBI restricts banks from giving guarantee to companies proposing to mobilise dollar resources abroad. In practice, this affects only small companies, since only they need bank guarantees, given their insufficient credit rating.

The flood of overseas money may well be an opportunity for banks to reset priorities and focus on lending to small companies.

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$ 6-b ECB money likely to flood markets — Cos seeking 'change in lender profile, lower interest cost'