India Inc's overseas borrowings jump to $18.5 b in March-Dec 2010

| | Updated on: Apr 03, 2011

Infrastructure financing, power sector companies seen tapping loans abroad, loans (mainly ECBs) borrowed from abroad have increased $18.5 billion between March 2010 and December 2010.

External commercial borrowings (ECB) raised by Indian companies hit record highs in the first three quarters of FY11 as companies sought to benefit from lower borrowing costs.

Portfolio investments by foreign investors in Indian equities were also at an all-time high in the last calendar.

According to International Investment Position of India released by the Reserve Bank of India, loans (mainly ECBs) borrowed from abroad have increased $18.5 billion between March 2010 and December 2010. This is the highest ever inflows recorded in nine-month period and compares very favourably with the $7.8 billion and $7 billion of net inflows for the whole of fiscal 2010 and 2009.

Record flows

It is observed that in every interest-rate up-cycle in the domestic market, India Inc scouts for overseas options for funding their debt requirement in order to limit their soaring interest costs. Not only is the demand high for such external commercial borrowings but also the availability.

The current quantum of borrowing may actually surpass the record inflow of $26 billion in FY08. Infrastructure sector, which is the highest borrower in the domestic market, could be the front-runner in raising funds through ECBs too given its ever-growing requirement for funds. The fact that many banks are nearing their exposure limits to this sector also constraints domestic fund raising by these companies.

In addition, infrastructure financing companies that have been allowed to raise higher amount of ECBs through the automatic route, have also been tapping ECBs. Power is the other sector that has been securing sanctions from Chinese and the US banks to raise funds abroad. Reliance Power, for instance, received sanctions from Chinese banks for funding its debt. ECB data also suggest that several telecom companies such as Vodafone Essar, Aircel and Sistema Shyam Teleservices got permission to raise funds abroad in the current fiscal. Total external loans according to the IIP report as of December 2010 were $140 billion.

FIIs in debt

The IIP report also shows that foreign investors have increased their exposure to domestic debt. In the three quarters ended December 2010, portfolio investments in debt were up $4.7 billion. This is against $3.3 billion and $1.5 billion invested during the corresponding periods in 2009 and 2008 respectively. The rise in portfolio investment in debt is also a function of FII limit being increased in corporate and government debt securities in September 2010. With the current budget reducing the withholding tax on debt investments by the FIIs, these inflows may further improve. The portfolio investment in debt securities was $33 billion as of December 2010.

Equity flows

FII inflow into equity in the year ended December 2010 was $44.8 billion, the highest inflow ever. The last time when investments in equity hit similar levels was in 2007 before the market crash of 2008. Mega issuances of Coal India and other IPOs, in addition to slew of qualified institutional placements, attracted huge FII inflows. Interestingly, the inflows, according to SEBI site, during the same period, are only $29 billion.

Published on March 12, 2018

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