India Inc raised over $2.47 billion from overseas markets in October through external commercial borrowings (ECB) and foreign currency convertible bonds (FCCB). This is slightly higher over September, where companies had raised $2.36 billion.
Around 80 companies raised about $2.07 billion for various projects through the automatic route in October which does not require approval from the RBI or the Government.
Major fund raisers in October included Hindustan Petroleum Corporation which mopped up $465 million for modernisation and Bhushan Power and Steel which raised $410 million for import of capital goods through ECBs.
ECBs refer to commercial loans in the form of bank loans, buyers' credit, suppliers' credit, securitised instruments (e.g. floating rate notes and fixed rate bonds) availed from foreign lenders with minimum average maturity of three years. FCCBs are a bond issued by an Indian company expressed in foreign currency, and the principal and interest in respect of which is payable in foreign currency.
Limits raised
Corporates, registered under the Companies Act, 1956, were earlier allowed to access ECBs up to $500 million in a financial year under the automatic route.
However, in September this year, the Government raised the limit of external borrowings under the automatic route to $750 million. Such ECBs, where a corporate can raise money without seeking regulator's approval, would have a maturity of above five years.
For the services sector, the ECB limit under the automatic route was doubled to $200 million and for NGOs from $5 million to $10 million.
The ECB, which is not covered by the automatic route, is considered under the approval route on a case-by-case basis by the RBI.
ECBs are used as an additional source of funding by Indian corporates to augment resources available domestically.
Under the approval route, in October, Reliance Power raised $299.9 million through FCCBs for refinancing of old loans.
“Our analysis for BSE 500 companies highlights that out of 28 companies with FCCBs maturing by FY-13, 25 will face FCCB redemption, translating into Rs 33,000 crore cash outflow.
“Steep Indian rupee depreciation has resulted in huge [mark-to-mark] MTM losses, which coupled with redemption premium (generally kept off P&L) will lead to higher effective cost of borrowing through FCCBs. While refinancing through domestic debt will trim PBT, companies resorting to restructuring of FCCB will face higher dilution,” said a report from Edelweiss Securities.