Cheaper Swiss loans a big draw for Indian firms; Union Bank, SBI already tapped Swiss institutions

MUMBAI: Switzerland is fast emerging as the fund-raising hub for Indian companies, which are looking to borrow from Europe's new pool of money. Cheap interest rates and lower currency hedging costs are prompting domestic companies to tap the cash-rich financial institutions in the European country, famous for its banking secrecy laws.

In the last year or so, six Indian firms, including Union Bank, SBI, Exim Bank and Rural Electrification Corp have borrowed in Swiss francs and investment banks said more are in the queue.

"In terms of overall borrowing rates also, the Swiss market is cheaper compared to traditional markets. Hedging costs are lower while borrowing in Swiss francs," said Sunil Agarwal, head, institutional client group, Deutsche Bank India.

Top rated Indian firms have managed to raise debt at a tad below 9% (inclusive of hedging cost) in Switzerland compared to the 11.5-12% interest rates that local lenders charge companies for rupee loans. By issuing convertibles, domestic companies can bring down their borrowing rates to 5.5%.

Union Bank was the first one to raise 160 million Swiss francs in 2011. SBI and Exim Bank raised 325 million Swiss francs and 175 million Swiss francs, respectively, from Swiss investors last year. State-run power financing company Rural Electrification Corp raised 200 million Swiss francs in February 2012 while IDBI issued Swiss francs-denominated bonds in March this year to pocket funds worth 110 million Swiss francs.

Bankers said comparatively lower hedging costs for foreign companies raising money from Switzerland due to lower volatility in its currency is an added incentive. Bankers said the hedging cost of Swiss franc is about 10-15% lower than the US dollar.

French, Italians Shy Away

"At a swap level, borrowing from Swiss market would be cheaper by about 10-20 bps in comparison to US market. Swiss market is apt for small, short-tenured issuances," said Agarwal. Another reason for local companies to tap the Swiss market to borrow is that other large European lenders, including large French and Italian banks are refraining from lending outside their countries in the wake of the eurozone debt crisis.


Though Japan is a cheaper market to borrow at roughly 2%, investment bankers said investors' demand for a 'Government of India' guarantee to fund Indian companies is a hindrance.

Swiss investors, on the other hand, are less worried about lending to Indian companies, investment bankers said. "Despite a 'BBB- ' sovereign credit rating, higher yields and decent past track record of most of the Indian borrowing companies are prompting Swiss investors to invest in bonds of Indian companies," said Brijesh Koshal, MD - investment banking, Daiwa Capital Markets.

"Swiss investors are also comfortable investing in Indian bonds. They like India's growth story," said Deutsche Bank's Sunil Agarwal.