After hitting a 13-month high in October, external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs) issued by Indian companies dipped slightly to $2.35 billion.
Last month, Indian companies borrowed a total of $2.58 billion through ECBs and FCCBs.
ECBs are term loans raised by Indian companies in the overseas market. FCCBs are bonds issued in the overseas market which can be converted into equity by the holder at a stipulated price.
Most FCCBs and ECBs are benchmarked to the London Interbank Offered Rate (Libor), which is the rate at which banks lend funds to each other in the London interbank market.
“Spreads have been narrowing, so more and more Indian companies have been tapping this route. However, the trend continues in the sense that there are only bilateral and club deals happening. There are still no syndication deals happening,” said a senior executive of a foreign bank.
According to investment bankers, there is appetite for Indian papers among Asian banks. A top-rated Indian company can hope to get a spread of 250-300 basis points (bps) above Libor for a five-year loan. A-rated companies can expect spreads of 300-400 bps over the Libor.
| DOWNHILL MARCH | ||||||
| 2008 | 2009 More From This Section | |||||
| ECB | FCCB | TOTAL | ECB | FCCB | TOTAL | |
| April | 940.82 | 220.00 | 1160.82 | 286.13 | 12.50 | 298.63 |
| May | 1026.05 | 250.00 | 1276.05 | 433.29 | 61.00 | 494.30 |
| June | 1577.25 | 38.00 | 1615.25 | 1919.04 | 0.00 | 1919.04 |
| July | 2471.81 | 0.00 | 2471.81 | 1925.22 | 90.00 | 2015.22 |
| August | 1368.87 | 234.50 | 1603.37 | 1074.57 | 15.00 | 1089.57 |
| Sep | 2834.95 | 0.00 | 2834.95 | 1334.57 | 175.00 | 1509.57 |
| October | 1125.23 | 0.00 | 1125.23 | 710.72 | 1875.00 | 2585.72 |
| Nov | 1702.48 | 0.00 | 1702.48 | 948.67 | 1405.00 | 2353.67 |
| Total | 13047.47 | 742.50 | 13789.97 | 8632.20 | 3633.50 | 12265.71 |
| Figures in $ million Source : RBI | ||||||
The Tata Group was a big borrower in November with Tata Steel issuing $1 billion, and Tata Power issuing $300 million of FCCBs. Other big borrowers included L&T Mhi Turbine Generator which raised $99 million through the ECB route.
Once the Reserve Bank of India (RBI) guidelines come into force from January 1, companies will not be allowed to borrow for three years at spreads greater than 300 bps. Spreads for five-year loans will be capped at 500 bps.