S&P upgrade effect: overseas borrowing to be cheaper

The upgrade of India's foreign currency debt rating by Standard and Poor's has boosted the confidence of the Indian corporates to go in for foreign currency borrowing as the rates will be finer.

However, bankers said the existing rates of overseas borrowings by Indian firms have already factored in the upgradation as the world has been lapping up the India story.

The external commercial borrowing (ECB) of Reliance Industries which has been finalised at 95 basis point over Libor will be a test case for the new country rating.

Bankers expect the spread at which the loan is bought in the secondary market will be reflective of the change which the S&P rating upgrade has managed to create in the overseas loan syndication market.

Dealers also said that with this upgrade, acceptability of Indian papers will be widespread even among foreign banks which do not have presence in India.

The Chinese and Taiwanese banks have already participating in Indian loan syndication programme but the interest will be much more now.

Amitabh Khanna chief financial officer VSNL said that the rating upgrade will boost the corporates confidence to borrow overseas at competitive rates.

VSNL is looking at setting up offices overseas to support this growth the company will keep all its capital raising options open, he added. Bankers said that corporate across the board will definitely help in terms of pricing of their foreign currency borrowing.

The quasi sovereign and public sector undertakings are likely to receive even finer spreads compared to what they are getting now.

They pointed out that spread could not be much finer for corporates like Indian Oil for whom market had already discounted the India story by offering a spread of 65 basis point over the London interbank offered rate (Libor).

Sundeep Bhandari, regional head, global markets, StanChart, said the upgrade will not have a material impact as the India story has been already sold.

The spread at which the corporate are borrowing and at which the bonds are being traded seem to have already discounted it long back after Moody's upgraded the Indian ratings.

Moody's have already upgraded India rating to baa3 way back in January 2004.