Global financial turmoil, tighter norms hit ECBs

MUMBAI: The global financial turmoil and tighter ECB norms since last August have taken a toll on overseas borrowings by Indian companies. There is a distinct slowdown in the external commercial borrowings (ECBs) market, with most large and listed companies choosing to stay away. Private limited companies accounted for a majority of the borrowers.

According to the latest Reserve Bank of India figures released on Friday, ECBs and foreign currency convertible bonds (FCCBs) raised by Indian companies were more or less flat over the August 2007 levels, but slowed down to $1.6 billion in August from $2.5 billion in July. The government had, last year, imposed end-use restrictions on the overseas
borrowings by India Inc.

A sizeable amount was borrowed through the automatic route, but the number of borrowers opting for the approval route has been higher. A total of 25 borrowers raised $894 million in August through the automatic route, that does not require prior RBI nod, while 35 borrowers raised $709 million through the approval route. Most of the borrowings that took place in August were either meant for importing capital goods or funding the purchases of capital goods locally.



Interestingly, a company has raised funds through the FCCB route after a long time. Temptation Foods garnered $200 million through this route to fund an overseas acquisition. Dongsung Precision was the largest borrower during the month, raising $367 million for six years and five months to import capital goods. With the exception of Idea Circular, which borrowed $210 million for 11 years and three months for the import of capital goods through the approval route, not many large companies have accessed the overseas markets for funds during the month.

Large companies are now opting for bank funds over the overseas markets, according to bankers. The companies��� bank borrowings have been 5.5% since end-March compared to 2.3% a year ago, although the manufacturing activity has not picked up significantly during the period.