The Hindu Business Line : `Offshore financing growing 51 pc'

There has been a dramatic growth in overseas funding in Indian companies over the past five years. The trend of offshore financing by Indian companies is growing 51 per cent annually, says a briefing paper on `Funding corporate India: Opportunities in international financial markets', put out jointly by Economist Intelligence Unit (EIU) and Bank of America.

During 2005-06, Indian companies raised around $16 billion, raising the growth figure to 75 per cent. Out of this, External Commercial Borrowings (ECB) accounted for $13 billion, and about $2.5 billion was funded through American Depository Receipts and Global Depository Receipts.

The average growth in private external inflows to India over the past five years (2001-05) was the highest in Asia, logging an 88 per cent growth annually, the EIU report said.

"Growth in investment activity, a liberalised economy, lowering interest rates, hedging benefits and strong investor interests are the factors driving offshore financing in India. Looking ahead, the prospect of pocketing more offshore funds looks good, thanks to the projected rise in annual GDP growth. The continuing mismatch between domestic savings and domestic investments will lead to more capital requirements. This, in turn, will increase overseas financing,'' said Mr A. Uday Sekhar, the author of the report.

Incidental factors

Robust growth in domestic and export demand, three-fold growth of capital goods imports, increase in industrial production, relaxation of regulatory framework for ECBs and FCCBs, the introduction of `Automatic Route' for ECBs and strengthening of the rupee are the incidental factors, said Mr Sekhar.

Procedural aspects such as complying with higher accounting standards, credit ratings, exchange rate risks, stock market volatility and hardening of global interest rate are restraining factors to overseas financing, according to the report.

Commenting on the report, Mr Vishwavir Ahuja, Country Executive Officer, Bank of America, said, "This report affirms our view that India's major corporations have reached a new level of maturity and integration with global financial markets, and are ready for more sophisticated capital raising alternatives. Growth in overseas financing underlines the fact that raising funds abroad is speedy and more viable.''

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