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The falling value of the rupee may impact hard the profitability of Indian companies which have tapped overseas loans, and their bottom-lines are likely to take a hit of over $2 billion this year.
The corporates have been increasingly tapping overseas loans — mostly in the US currency — to save costs arising out of higher interest rates and liquidity constraints in the domestic market in the recent months, but the falling value of rupee seems to have negated the benefits, experts believe.
The rupee has depreciated by over 12 per cent to close to 50-a-dollar mark currently from its near 44-level against the US currency at the beginning of August.
It was the worst performer among major Asian currencies with a decline of 5 per cent in the past week alone and this downtrend has added to the woes of the companies having gone abroad for their borrowing needs.
Indian companies have borrowed close to $21 billion through the ECB (External Commercial Borrowing) window between January and July this year, against a total of $18 billion in entire 2010.
In July itself, as many as 100 companies tapped overseas loans totalling over $4 billion. This included Mukesh Ambani-led RIL raising $1.09 billion for refinancing its old loans, Mundra Port $150 million for ports business, and Indian Oil $500 million for import of capital goods.
The analysts said that liquidity deficit and relatively higher interest rates in domestic market were prompting the Indian companies to tap cheaper dollar loans for funding their domestic business activities, imports, overseas acquisitions and refinancing of existing rupee loans.
However, the situation has turned around with a sharp rupee depreciation in the past few weeks from a relatively stable trend in earlier months of the year, because of which many of the companies did not even hedge against the currency fluctuation risks, analysts said.
As a result, many of the companies might have to book mark-to-market losses on their books for this year unless the rupee reverses its downward trend, experts said, while adding that the current level of rupee depreciation pegs the estimated hit on their profits at over $2 billion.
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