ECB flows up 19% in June

First monthly rise since credit crisis intensified in Sept 2008.

External commercial borrowings (ECB) by Indian companies have risen for the first time since September 2008, when the global credit crisis had intensified.

According to data released by the Reserve Bank of India (RBI) on Thursday, ECBs by Indian companies rose 19 per cent to $1.92 billion (around Rs 9,200 crore) in June. This is the highest since September 2008, when Indian companies raised $2.83 billion through this route.
 

FUND INFLOW
In $ mn	ECB/FCCB
	2008-09	2009-10	% chg
April	1,160.82	298.63	-74.27
May	1,276.05	494.30	-61.26
June	1,615.25	1,919.04	18.81
Aggregates	4,052.12	2,711.97	-33.07
Source : RBI

Following the collapse of Lehman Brothers last year, global markets faced absence of liquidity with financial sector players reluctant to lend and lending rates touching record levels. Due to this, Indian companies met a part of their immediate financing needs from local markets and put expansion on hold.

While these companies were now accessing funds abroad to meet their working capital and capital expenditure needs, bankers said overseas markets had not improved considerably yet, though spreads on credit default swaps had come down, suggesting that the risk perception had improved (see table).

“There are only a handful of foreign lenders that are willing to lend and there are some Indian banks with branches overseas that are lending to Indian corporates. A majority of Indian companies that are raising funds abroad are doing it for offshore expenditure, which helps then avoid cross-currency swaps,” said a foreign bank executive.

Bankers said companies could access funds at 350-450 basis points over Libor in global markets.

“The market was dead a few months ago but there are signs of activity now. But very few syndication deals are taking place. There is appetite only for companies with AA or AA- ratings,” said Nishikant Das, director, debt capital markets at Standard Chartered Bank.

Nearly half the borrowings were accounted for by National Aviation Company of India Ltd and Air India Charters, which raised $904.4 million (around Rs 4,300 crore) for the short term for importing capital goods. Another large borrower was real estate player DLF Ltd, which raised $300 million (around Rs 1,400) crore.

Others such as Pepsico India ($130 million, Rs 624 crore), Suzuki Powertrain India (around $129 million), United Phosphorous ($50 million, Rs 240 crore) and Rolta India ($50 million) also used the ECB window. In June, $573 million (Rs 2,750 crore) was raised through the automatic route, while the remaining $1.35 billion was raised after RBI’s approval. During the first quarter of the current financial year, Indian companies raised $2.7 billion via ECBs, which was 33 per cent lower than the corresponding period of the previous year.