Indian cos repayments to rise on Swiss franc loans

Most of Indian companies, banks have taken adequate cover

Indian companies with Swiss franc loans will see their repayment rising, after the Swiss central bank decided on Thursday to stop capping the currency’s value.

As a result of the Swiss National Bank’s decision, a dollar was buying 88 Swiss centimes on Friday, down from 97 centimes a month ago. Many Indian companies, including Bharti Airtel and Bharat Petroleum Corporation, have exposure to the Swiss currency along with an assortment of Indian banks (see chart).

Bharti Airtel’s Dutch subsidiary has an exposure of CHF 350 million and analysts said its repayments would rise substantially if the company had not hedged its exposure.

“We adopt a prudent hedging policy for our transaction exposures. The Swiss franc happens to be less than four per cent of our diversified sources of financing,” a Bharti spokesperson said. The Bharti stock was down two per cent on Friday, on fears that it would be affected by its Swiss franc exposure.

Analysts said Indian companies mostly hedged their foreign exchange currency risk if they did not already have a natural hedge in foreign exchange earnings.

“In the case of banks, we expect they have taken appropriate cover, since they mandate their clients for hedging,” said Prabal Banerjee, president, international finance, at the Essar group.

“Though very few corporates have taken Swiss franc loans, it is expected they have hedged themselves both at CHF/dollar and also at the dollar/rupee leg to protect themselves from such fluctuations,” he added.

Treasury heads said low coupons and quick availability of capital tempted Indian companies to issue CHF-rupee-denominated bonds. The latest was a $100-million bond issue by the State Bank of India in December.

“Almost all Swiss franc bond issuers must have hedged their exposure. The franc is not a very actively tracked currency. One can leave the dollar exposure unhedged but not the Swiss franc,” said Hitendra Dave, head, global markets, HSBC India.

N S Venkatesh, executive director of IDBI Bank, one of the first Indian issuers of Swiss franc bonds, said the entire corpus was hedged and pegged to the dollar. “Whether Indian issuers go for Swiss borrowing in future will depend on the interest rate and currency movement at the time,” he said.

Marco Estermann, head, issuer relations, Six Swiss Exchange, where ICICI Bank and the State Bank of India have issued bonds, said the impact on Indian issuers would depend on the hedging strategy they had adopted.

Analysts also discounted the effect of a sharp Swiss franc spike against the euro and other major currencies. “The bulk of India’s foreign exchange exposure would be in dollars, followed by the euro and the pound sterling. Some corporates may have exposure in Swiss francs but the amount will be small,” says Madan Sabnavis, head economist, CARE Ratings.

He pointed to a recent finance ministry report that said the bulk of India’s external debt was dollar-denominated. While Swiss franc denominated debt accounted for less than one per cent.

Some analysts, however, warned of general risks from currency volatility. “It could trigger another round of capital flight to safe havens such as the dollar and weaken currencies like the rupee,” said Deep Narayan Mukherjee, senior director at India Ratings, local arm of Fitch Ratings.

Indirectly, appreciation in CHF would make India’s pharma exports competitive vis-à-vis their Swiss competitors. Switzerland is one of the leading pharma producing countries including generics. Novartis subsidiary Sandoz is  one of the world’s top generic producer. The gains to Indian pharma majors could however be neutralised somewhat by the continued depreciation in Euro improving the price competitiveness of European pharma makers.