Indian companies raised $452 million through the external commercial borrowing (ECB) route in February. This is the lowest level of overseas borrowings since February last year, when they had borrowed $420.11 million.
According to the data released by the Reserve Bank of India (RBI), during the April-February period this financial year, the total amount raised through ECBs by Indian companies was estimated at $16.51 billion, as against $20.58 billion during the corresponding period in 2007-08, representing a decline of 19.81 per cent.
The data also showed that, during February, there was no fund raising through the foreign currency convertible bonds (FCCBs) route, a trend that has continued for nearly six months now.
| GOING SLOW Overseas fund raising | ||||
| Month | ECB | FCCB | ||
| 2007-08 | 2008-09 | 2007-08 | 2008-09 | |
| April | 2071.90 | 940.82 | 200.00 | 220.00 |
| May | 3083.03 | 1026.05 | 344.27 | 250.00 |
| June | 2072.07 | 1577.25 | 735.32 | 38.00 |
| July | 2088.17 | 2471.81 | 1256.50 | 0.00 |
| August | 992.57 | 1368.87 | 531.38 | 234.50 |
| September | 1319.68 | 2834.95 | 917.00 | 0.00 |
| October | 3308.51 | 1125.23 | 296.34 | 0.00 |
| November | 1811.59 | 1702.48 | 430.00 | 0.00 |
| December | 1738.16 | 1669.18 | 535.00 | 0.00 |
| January | 1677.66 | 1337.08 | 210.00 | 0.00 |
| February | 420.11 | 452.60 | 442.00 | 0.00 |
| Total | 20583.45 | 16506.32 | 5897.81 | 742.50 |
“The ECB market has become virtually non-existent following the liquidity crunch. Even with the US Fed’s initiative to buy the toxic assets of such banks, the market is not expected to revive for at least three months,” said a banker.
While cost of funds is one issue, Indian companies are also postponing expansion due to the downturn in the domestic economy, resulting in lower requirement for funds.
During February this year, 32 Indian companies raised funds through the ECB route, for purchase of capital goods, modernisation, project financing and FCCB buyback.
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As many as 25 of these 32 companies raised the money through the automatic approval route, and the remaining seven companies raised ECBs through approval route, which requires clarification from the company regarding the conformity with end-use, the eligibility of the borrower and other parameters of ECB.
The average amount raised stood at $14 million with two firms raising more than $100 million: Ford India raised $105 million for importing capital goods and Jaiprakash Associates raised $100 million for FCCB buyback.
Similarly, another firm First Source Solutions raised $45.58 million for buying back FCCBs. Besides Ford India, another 16 companies borrowed from overseas during the month for purchasing capital goods.
Indian companies need ECBs for their overseas expenses as well as for repurchasing outstanding FCCBs as they are trading below their conversion prices and are not likely to be converted, a banker added.
So far this year, telecom companies such as Reliance Communications and Vodafone have been among the big ECB users. The funds were raised to meet their network expansion and rollout needs.
Air India and its subsidiaries are the other big borrowers to raise funds from overseas markets. The money that has been raised through ECBs will be used to finance the government-owned airline’s fleet expansion requirements.