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Indian firms solicited more overseas loans in 2011-12 than a year ago, ignoring rupee depreciation amid a domestic fund crunch.
According to RBI data, Indian firms notified plans to secure $35.96 billion in External Commercial Borrowings (ECB) and Foreign Currency Convertible Bonds (FCCB) through the automatic and approval route in 2011-12.
In 2010-11, they had notified the central bank of their intent to raise $25.77 billion. While the value of ECB/FCCB applications grew by 39 per cent, that of domestic borrowings rose by 17 per cent.
Refinancing old loans
A sizeable chunk of the foreign borrowings — 16 per cent or $5.86 billion — is intended to refinance old loans and FCCBs.
Borrowing for new projects stood at around $2.97 billion and overseas acquisition plans accounted for $1.21 billion of the total funds.
However, the bulk of the ECBs/FCCBs is to be utilised for import of capital goods, rupee expenditure, road building and modernisation, and so on.
Reliance Industries, which came out with the single largest ECB proposal during the year, intends to use the funds to refinance old loans worth over a billion dollars. Mobile communications firms that had borrowed funds last year to buy 3G spectrum in India have also used the ECB route to refinance their old rupee loans.
While Reliance Communications plans to service its old debt of close to a billion dollars, Aircel plans to borrow $992 million, and Vodafone and its subsidiaries said they would refinance $340 million in 3G licence fees borrowed in rupees.
Suzlon Energy is looking to borrow $200 million for an overseas acquisition, while ERA Infra Energy Ltd indicated its intent to spend $220 million on an overseas buy.
Number of proposals
The number of proposals to borrow overseas also witnessed a significant jump last year.
In 2011-12, 1,074 proposals for ECBs and FCCBs were received by the RBI, compared to 726 in 2010-11.
The depreciation of the rupee in 2011-12 did little to dull the appetite of Indian firms to raise overseas loans.
The firms probably chose to ignore the risk from a weakening rupee while turning to foreign loans, on account of a drastic shortage of funds at home, with banks stalling loans to sectors perceived as high risk, such as power, real estate and microfinance.
A few firms also expect the rupee to appreciate by the time the loan matures.
Overseas borrowing plans were at a high in the July-September quarter of 2011, when they notified the RBI of ECB and FCCB fund-raising plans worth $10.23 billion.
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