Ashok Leyland Finance Ltd (ALF) has decided to raise Rs 300 crore by issuing commercial papers (CP) within the next three months.
The move forms part of a working capital restructuring exercise aimed at bringing down the interest costs.
The CPs would fill the gap created by the decision to eradicate the Rs 120-crore exposure to FCNR (B) funds.
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"We will place commercial paper for Rs 65 crore before the end of this month," ALF's vice-president, finance, N Sampath Kumar told Business Standard.
ALF currently enjoys the highest P1+ rating from Crisil for CPs up to Rs 80 crore.
The company has applied for extension of this limit to Rs 150 crore.
The company currently has an outstanding CP position of Rs 60 crore.
This is likely to increase to Rs 150 crore by the end of this month.
ALF, which works on a July to June accounting year, currently has a working capital limit of Rs 480 crore.
The company is confident of increasing this to Rs 550 crore soon.
"This will give us the flexibility to increase our CP exposure to Rs 300 crore before the end of September," Kumar said.
ALF has opted for CPs as it offers interest rates that are cheaper than the conventional working capital demand loan and cash credit routes.
"We are confident of placing the CP at rates between 11.5 and 11.75 per cent. All put together the cost will be less than 12 per cent, " Kumar said.
Contrary to this, interest rates on working capital loans and cash credit currently hover between 15.5 and 16 per cent.
"The exercise is aimed at achieving interest savings by using CP as a hedging instrument," Kumar explained.
Commercial papers are currently available with 90-day or 180- day tenures.
In the second phase of the working capital restructuring exercise, ALF proposes to completely slash its Rs 120 crore exposure to FCNR (B) deposits.
ALF had tapped the FCNR (B) deposits with a full forex cover at a premium of 6 per cent.
The effective interest rate worked out to less than 13.5 per annum.
These FCNR (B) deposits had tenures ranging from six to 12 months.
"However, with the forward premium on the dollar shooting up to 12 per cent and the rupee losing ground, the FCNR (B) route is no longer attractive," Kumar said.