India Inc raises over $22 bn via ECBs

MUMBAI: Indian Inc has been on a major overseas borrowing spree on the first eight months of this calendar year. During January-August this year, India companies borrowed almost double the amount they borrowed in the same period a year ago.

Reserve Bank figures show that India Inc borrowed $22.9 billion between January and August 2007, through external loans, bonds and foreign currency convertible bonds (FCCBs). In contrast, it had borrowed $12.9 billion in the corresponding period a year ago.

However, RBI‘s recent clampdown on ECBs seems to have an impact. A detailed borrower-wise analysis indicates that the Ambani brothers have been the biggest borrowers this year with both the brothers together accounting for $6.31 billion of the total borrowings during the period.

FCCBs issuances in the same period have also belied expectations of a sharp dip. Amount raised throught the route stood at $4.09 billion as against $5.54 billion in January-August last year. Bankers expected that the bull rally in the capital market will reduce FCCB issuances as investors may not be willing to pay a conversion premium over heightened spot prices.

Companies led by the Ambani brothers continued to dominate external borrowing. Mukesh Ambani-led companies borrowed $3.67 bilion this year, while companies of Anil Ambani borrowed $2.6 billion. Reliance Industries has emerged the biggest borrower with $2 billion being raised in one transaction alone this year.

In 2006-07 the Ambani brothers together raised $6.5 billion of which $3.6 billion was raised by Mukesh Ambani group and $2.5 billion was by Anil Ambani-led companies. With around $1.19 billion of overseas borrowings, Jet Airways has been another major borrower.

The 11% rise in rupee value since January has reduced repayment costs for corporates. Expectations of a stronger rupee has promoted corporates to leave their dollar exposure open by not hedging. Post-April, the subprime crisis has pushed up the cost of borrowings for Indian companies.

For an AAA-rated company, the spread over Libor has gone up 1.5 times, while for lower-rated company, it is over two times. A softening of Libor has not benefited all corporates as most had swapped floating rate liabilities for fixed rate loans.

The RBI had in May tightened the ECB guidelines. For borrowings between three to five years it cut the 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 regulators would effect the raising of money by smaller corporates.

According to the data available smaller Indian corporates borrowed atleast around $250 million in April and over $350 million in May. These corporates would now fund it unviable to raise money overseas. The subprime crisis has also affected the pricing of smaller Indian corporates as investors are now vary of lower rated corporates.

But one will have to still wait and watch the full-fledged impact of a further tightening of the end-use restriction by the central bank in mid-August this year.