Cos borrow overseas to pay off dues, keep debt flat

MUMBAI: Despite raising $13 billion through foreign loans in 2008-09, Corporate India���s liabilities arising out of foreign debt have remained flat. This is because loan repayments have almost kept pace with fresh borrowings through the external commercial borrowings (ECBs).

Total outstanding amount under ECBs by Indian corporates stood at $62,508 million as of March 2009. Against this, the outstanding foreign debt was only marginally lower at $62,337 million as of March 2008.

According to the latest data by the Reserve Bank of India (RBI), inflows from ECBs amounted to $13.4 billion during 2008-09. Against this, repayments amounted to $10.4 billion, ($6.4 billion towards amortisation, and $4 billion towards interest payments).

The outflows include the buyback of foreign currency convertible bonds (FCCBs), which technically amounts to repayment of debt. Post-crisis, many corporates were able to buy back FCCBs at huge discounts thereby reducing their borrowing costs.

RBI rules say that an existing ECB may be refinanced by raising a fresh ECB, subject to conditions to the extent of the residual maturity of the original ECB. RBI had approved around $260 million worth of FCCB buybacks, essentially during the past quarter of FY10. Jaiprakash Associates was the largest borrower to raise funds through this route to buy back ECBs. In addition, another $179 million was approved to refinance existing loans during the year. The trend has continued during the first quarter, which has seen an outgo of $3 billion towards servicing of old loans against an inflow of $1.8 billion.

According to KN Dey, director, Basix Advisory ��� a firm that advises corporates on currency risks and structuring of ECBs ��� corporates repaid more because through most part of FY09, the London Inter-Bank Offered Rate (Libor) was very high on account of the dollar liquidity crunch. As almost all funds raised through ECBs are priced at a premium to Libor, the servicing costs went up sharply.