India Inc raises $5.2 b via ECBs in the first two months of FY19

With bad loans-laden domestic banks turning conservative in lending, India Inc has taken recourse to external commercial borrowings (ECBs) for their funding requirements in the first two months of the current financial year. Total funds raised during this period via ECBs, at $5.264 billion, was 91 per cent higher than in the corresponding year-ago period.

The fund-raising via ECBs comes in the backdrop of domestic banks, especially state-owned banks, turning more circumspect in lending due to the deleterious impact of bad loans on their balance sheets, and the general fear among bankers that even honest bona fide lending decisions could come under the lens of investigating agencies. It may also be a signal that investments are gathering steam.

In FY2017-18, India Inc mopped up $28.868 billion via ECBs, about 31 per cent more than the $21.985 billion raised in the previous financial year.

ECBs are commercial loans raised by eligible resident entities from recognised non-resident entities, and are required to conform to certain parameters such as minimum maturity, permitted and non-permitted end uses and maximum all-in-cost ceiling, among others.

These overseas borrowings could be in the form of loans, including bank loans, securitised instruments, buyers’ or suppliers’ credit, foreign currency convertible bonds, financial lease and foreign currency exchangeable bonds.

ECBs proved attractive last year and in the first two months of the current financial year due to lower borrowing cost and a stable rupee. As per data from the Reserve Bank of India, in FY2018, India Inc mopped up ECBs at a weighted average margin of 1.34 per cent over the six-month London Interbank Borrowing Rate (LIBOR), down from 1.62 per cent in the previous financial year. In April and May 2018, this margin was at 1.02 per cent (2.53 per cent in April 2017) and 1.11 per cent (1.56 per cent), respectively.

Madan Sabnavis, Chief Economist, CARE Ratings, said: “I think, last year (FY18) Indian companies raised quite a bit – on an average $2.4 billion a month. So, I have a feeling that the same trend is continuing.”

“This is indicative of: (a) there is some sign that investment is taking place in the country; (b) we should also realise that the banking system is not in a position to provide these kind of funds; and (c) companies, which are better rated, find it advantageous to tap the overseas markets to borrow because they are getting funds at a better rate of interest.”

However, Sabnavis felt that the RBI’s data could point to a slowdown in ECB resource-raising in June 2018 as the exchange-rate risk increased and the rupee became more volatile.

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