Foreign borrowings up 69% to $5.6 bn

MUMBAI: Overseas borrowings by Indian corporates shot up 69% to $5.6 billion in April-May 2007 from $3.3 billion last year on the back of a $2 billion borrowing by Reliance Industries (RIL).

However, borrowings through foreign currency convertible bonds (FCCBs) saw a 69% drop, with issuances in the two months falling to $544 million from $1.754 billion in the previous fiscal.

Convertibles give investors the option to exchange their bonds into equity in future at a pre-determined price, which is usually a premium to the prevailing market price.

May 2007 saw a spike in borrowing with RIL raising $2 billion. In the previous fiscal (2006-07), Mukesh Ambani’s group companies were one of the major borrowers at $3.6 billion. Airlines have also been major borrowers in the first two months of the fiscal.

Jet Airways borrowed $286 million while Indian Airlines raised $518.65 million with a special approval from RBI. Other major borrowers through the loan route were Reliance Communications ($500 million) and Ispat Industries ($500 million) while Sterling Biotech borrowed $250 million through the FCCB route.

Incidentally, other than these big-ticket borrowings by Reliance Industries, Indian Airlines and Sterling Biotech, May was a lacklustre month. In May, RBI had tightened ECB guidelines. For borrowings between three to five years, it cut spreads from 200 bps above Libor to 150 bps above Libor, while for borrowings of over five years, it cut spreads from 350 bps to 250 bps.

This move by the regulator was expected to affect fund-raising efforts of smaller corporates. According to the available data, smaller Indian corporates borrowed at least around $250 million in April and over $350 million in May. These corporates would now find it unviable to raise money overseas. The sub-prime crisis has also affected the loan pricing of smaller Indian corporates, as investors are now wary of lower-rated corporates.

According to bankers, FCCB issuances have shrunk as most of the bigger corporates had already raised money through this route. Even though stock markets were bullish in April and May, the volatility had scared overseas investors from committing to a high conversion premium on convertible bonds. Premiums for FCCB issues have come down to around 20-30% this year as against 30 to 40% last year.