Nithya Subramanian
Ambarish Mukherjee

New Delhi, Feb. 1

CORPORATE India seems to have started watching the changes in the forex market. Even though the panic buttons have not yet been pressed, companies have started looking at various strategies to keep their bottomlines intact.

The dollar volatility, the Libor moving up from 1.5-1.8 per cent a couple of years back to about 3 per cent now, and the possibility of an interest rate hike by the US Federal Reserve could have considerable impact on domestic companies.

According to investment banking sources, many have also started looking at various products to hedge their forex risks.

"The dollar had been witnessing a one-sided movement in the last few years, leading to complacency among corporates. But, now, the movement has become erratic. A range of structured deals is being worked out. These could include interest rate swaps, cross-currency rate swaps, forwards covers, options and so on," said a top official.

In fact, pharmaceutical companies which derive a large portion of their earnings from exports are increasingly covering their risks. Ranbaxy Laboratories Ltd, for instance, has hedged all its forex receivables for 2005.

Sun Pharma is of the view that the dollar will depreciate in the next few years. It has, through a forward contract, covered the entire $350 million it raised as FCCB (Foreign Currency Convertible Bonds). Also, it has hedged all its investments or assets outside India.

But a diversified company like DCM Shriram Consolidated Ltd, which has just finalised a $30-million foreign currency loan to fund its expansion plans, is yet to take a decision on what kind of cover it would take. A top company official said that though the dollar was erratic, how much of the loan would be covered would be a function of various factors such as the term of the loan, its utilisation and choice of currency. "Most probably, we will go for partial cover," he said.

The Sumi Motherson group, which has more than a dozen joint ventures with foreign partners, said it did not hedge its forex exposure because of its huge export earnings. According to a top company official, "We borrow in the currency in which we would be exporting, so there is always a natural cover."

Jindal Stainless, which has borrowed around $110 million the past few months, is still debating the issue. "We could opt for a mix.We could either buy a cover for some portion of our loans and the rest can be protected through export earnings," said an official.

(This article was published in the Business Line print edition dated February 2, 2005)
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