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Weak rupee raises companies' debt by Rs 80,000 crore

Arvind Jayaram
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The depreciating rupee is exacting a heavy toll on Indian companies. A rough calculation shows that their external debt has swollen by at least Rs 80,000 crore between March last year and now.

The rupee has declined from 44.65 per dollar on March 31, 2011, to below 54 now.

High interest rates at home had prompted several Indian companies last year to borrow abroad to finance business plans.

RBI data show that Indian companies had external commercial borrowings worth $88.8 billion or Rs 3.96 lakh crore by end-March 2011 on their books.

These have now swelled to Rs 4.76 lakh crore in rupee terms. That is a 19 per cent expansion. However, it must be noted that this is a notional increase. These sums will fall due for repayment in instalments over the next few years.

The above number is for the principal alone. The interest cost on servicing the loans is likely to have gone up too due to the higher dollar.

For example, in October 2010, Reliance Industries raised $1.5 billion in dollar-denominated bonds from the US, Europe and Asia to refinance debt and invest in expansion. These notes, falling due in 2020 and 2040, were worth Rs 6,697 crore in rupee terms as of end-March, 2011.

As of May 14, 2012, the value of these borrowings is likely to have increased to Rs 8,056 crore in rupee terms, a rise of 20 per cent. The periodic interest payments due on these bonds too would have increased as a result of the weaker rupee.

NTPC had roughly $300 million in foreign currency notes due by 2016 in its March 2011 balance-sheet. The outstanding of Rs 1,357 crore on that date is likely to have grown to Rs 1,630 crore at today's exchange rates.

Meanwhile, companies continued to borrow more from the overseas market over the last year. By end of December 2011, for instance, ECBs outstanding were at $100.1 billion, higher than the March levels. Based on this number, every paise increase or decrease in the rupee exchange rate against the dollar will have an impact of around Rs 100 crore on repayment in rupee terms.

Arvind.jayaram@thehindu.co.in

(This article was published on May 18, 2012)
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Comments:

This is very alarming.More than global reason as the finance minister
claiming,our bad governance and corruption is the reason for this
pathetic state of rupee.

from:  CA Satish Shetty
Posted on: May 18, 2012 at 23:18 IST

it is indeed surprising that the treasury managers, risk managers have not factored it into their calculations while signing off on the ECBs. It would have been wise to go in for local rupee borrowings, and the CDR is always made available by the local banks to avoid NPA on its books. The RBI should make it compulsory that some component of foreign currency borrowings are hedged, depending upon the networth etc of the borrower. These need to be monitored, as the cost of the unhedged borrowings is ultimately borne by the larger economy and rate payers. The RBI has also short sightedly encouraged, foreign currency borrowings to stengthen to rupee . Hindsight tells us it was unwise.
A major portion is due for repayment over the next two quarters, and given our reserves position places a strain on RBI to defend the rupee. Public posturing not withstanding. This leads to speculative attacks on the currency by huge unregulated hedge funds, which are supposedly beyond any regulatory control.

from:  Srinivas
Posted on: May 19, 2012 at 12:27 IST
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