Indian cos borrowing in yen
IMF says exposure to foreign loans may not spark off worries. In some cases firms use loopholes to borrow directly in low-yielding funding currencies or to swap liabilities using cross-currency swaps.
By TNN |
MUMBAI: A number of Indian firms are borrowing in the Japanese currency and leaving it unhedged, but overall exposure to foreign loans is relatively small and may not spark off worries, according to a report released by the International Monetary Fund.
The global financial stability report unveiled recently says that firms in Asia have increasingly established or extended positions that offer long exposure to foreign currencies. Although many countries restrict foreign borrowing by domestic institutions, it says that in some cases firms use loopholes to borrow directly in low-yielding funding currencies or to swap liabilities using cross-currency swaps.
The report cites the case of India where firms with a multinational presence borrow directly in yen, or use cross-currency swaps to convert foreign exchange exposure. External borrowing by Indian corporations — both non-financial and financial — is increasingly in yen and left largely unhedged, the report points out. But the worry lines aren’t stretched yet. The report says that debt-equity ratios are not particularly high, so even though Indian firms may be taking on greater foreign exchange exposure, they remain at low leverage levels.
In Korea, yen-linked loans have also reportedly become more common, particularly among small and medium-sized importers. The extent of this yen exposure appearing on domestic bank balance sheets is now about $15 billion — still moderate when scaled to the size of the domestic banking sector, the report says.
Also, some borrowing occurs off-balance-sheet or through derivatives markets. On balance, it appears that there has been a significant uptick in foreign currency-denominated borrowing in India and Korea.
The global financial stability report unveiled recently says that firms in Asia have increasingly established or extended positions that offer long exposure to foreign currencies. Although many countries restrict foreign borrowing by domestic institutions, it says that in some cases firms use loopholes to borrow directly in low-yielding funding currencies or to swap liabilities using cross-currency swaps.
The report cites the case of India where firms with a multinational presence borrow directly in yen, or use cross-currency swaps to convert foreign exchange exposure. External borrowing by Indian corporations — both non-financial and financial — is increasingly in yen and left largely unhedged, the report points out. But the worry lines aren’t stretched yet. The report says that debt-equity ratios are not particularly high, so even though Indian firms may be taking on greater foreign exchange exposure, they remain at low leverage levels.
In Korea, yen-linked loans have also reportedly become more common, particularly among small and medium-sized importers. The extent of this yen exposure appearing on domestic bank balance sheets is now about $15 billion — still moderate when scaled to the size of the domestic banking sector, the report says.
Also, some borrowing occurs off-balance-sheet or through derivatives markets. On balance, it appears that there has been a significant uptick in foreign currency-denominated borrowing in India and Korea.
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