Indian companies filed for external commercial borrowings (ECBs) worth $2.6 billion (Rs 13,300 crore) in February for funding capital expenditure, acquisitions abroad and to repay old loans.
Reliance Communications accounted for $925 million for redeeming its Foreign Currency Convertible Bonds (FCCBs). Vodafone entities (seven) raised $750 million to finance rupee expenditure, according to Reserve Bank of India data.
Senior bank officials said foreign borrowing by Indian companies remained high in 2011-12, to take advantage of the very low interest rates in the international market. Even after accounting for foreign currency risks, hedging costs and the spread over benchmark rates, the cost of these funds are low, compared to the high lending rates charged in India.
Engineering giant Larsen & Toubro pegged borrowings at $71.46 million to finance rupee expenditure. So did Vijay Mallya’s United Breweries, for ECBs worth $50 million. Renault Indian Pvt Ltd, the Indian arm of the European automobile company took $29 million for a new project. Gujarat Narmada Valley Fertiliser, a Gujarat government enterprise, borrowed $43.03 million for capital goods expenditure.
The government has allowed companies in power, aviation, roads and low-cost housing to use the ECB window in the Union Budget for 2012-13, as domestic borrowings turn costly under the high interest rate regime and certain sectors find it difficult to raise funds. Analysts say the thing to watch will be how many companies are able to raise cash via ECBs, as lenders would demand that the companies’ ratings be on par with at least the BBB sovereign grading for India.
The Budget has also allowed airline companies to use ECBs for one year, subject to a ceiling of $1 billion.