Smaller cos borrow major ECBs

NEW DELHI: It may come as a surprise to those who think that most of the funds raised overseas are tapped by India Inc biggies. An analysis of the numbers reveals that relatively lesser-known companies accounted for a major chunk of the money raised overseas by way of external commercial borrowings (ECB) in 2006-07.

According to figures on the RBI website, lesser-known companies across sectors, such as shipping, steel, paper, cement and hospitality, accounted for almost half of the total money raised overseas between March and December 2006.

These companies raised $6.7 billion or close to 50% of the total $14billion ECB during March-December 2006. Complete data for 2006-07, when ECB inflows are estimated to have crossed $22 billion, are not available. The amounts raised by individual companies varied from as little as $700,000 to $200 million.

The calculations have been arrived at by subtracting the amount raised by well-known companies such as Jet Airways, Kingfisher Airlines, Reliance Industries, JSW Steel, Grasim Industries, Air India, Raymond, Reliance Natural Resources, IOC, BPCL and Export-Import Bank of India, among others.

Corporates tap overseas markets for cheaper funds as the cost of rupee funds is much higher, especially in the face of rising domestic interest rates. Liquidity in the international markets is huge as compared to the domestic market and corporates can raise large amounts of funds at competitive prices depending on the risk perception.

Under current ECB guidelines, all companies registered under the Companies Act except financial institutions such as banks, financial intermediaries and housing finance companies are eligible to raise up to $500 million under the automatic route in a given financial year.

More than $500 million can be raised after prior approval from the RBI. Under the approval route, financial institutions dealing exclusively with infrastructure or export finance such as IIFCL, IDFC, IL&FS, Power Finance Corporation, Power Trading Corp, Ircon and Exim Bank, are allowed to tap the ECB window.

Further, funds raised from overseas markets can only be used for investment purposes such as import of capital goods, modernisation and expansion of production units, new projects and investment in infrastructure such as telecom, roads and ports, among others.