The Hindu Business Line : Cos raise $5 b via ECBs in March

Chennai May 30 A range of industries spanning infrastructure, telecom, oil & gas, sugar, chemicals, auto, pharma, cement and financial services among others have contracted to raise as much as $5 billion in external commercial borrowings (ECB) in March alone. This is the highest-ever borrowing in a single month. This comes on top of around $20 billion of borrowings in the April 2006 - February 2007 period.

That investment spending in the Indian economy has been on an upswing is well-known. The latest ECB statistics put out by the Reserve Bank of India provide further evidence of the strong capex going on in the corporate sector.

Impact

This level of overseas borrowing impacts not only the overall external finances of the country but has significant implications on an on-going basis in various financial markets - be it equity, foreign exchange or interest rates.

With appropriate maturity structuring and pricing guidelines, the impact at the aggregate level appears to be quite favourable and manageable. As per the external debt statistics put out by the Ministry of Finance, commercial borrowings accounted for around $36 billion out of a total debt stock of $142 billion as at end December 2006. The heightened level of external commercial borrowings in the past year has not altered the maturity structure of overall debt with short-term debt still accounting for only around 6 per cent of total debt, unchanged from the previous year.

Significantly cheaper

As a corporate financing strategy, foreign currency borrowings appear to be proving significantly cheaper vis-à-vis rupee debt, mainly because of the capital gains generated by an appreciating rupee. GMR Hyderabad International Airport Ltd, which has raised 17 year money, has been able to hedge its interest rate risk at a cost of 7.5 per cent for the entire tenor while it has left the currency risk open given its dollar earnings, according to its CFO, Mr Rajagopalsamy.

At $25 billion, close to Rs1,00,000 crore of money which otherwise may have been raised locally - either through debt or equity - is off the domestic markets this fiscal. To that extent, local interest rates are less pressured and the supply of equities is also lower. Also, the large-scale asset creation that is taking place on the back of these borrowings augurs well for the earnings prospects for Indian companies in the period ahead.

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