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Indian companies’ fund raising abroad was at a record high of $36.4 billion this year, compared to $29.2 billion during 2012.
Reliance Industries (RIL) and Vedanta group companies were the top two, raising funds abroad to finance projects in India and swap older and more expensive loans.
Research firm Dealogic says Indian companies raised close to $21.09 billion via dollar-denominated loans and local companies sold bonds worth $15.4 billion to primary investors abroad.
RIL was India’s top foreign loan borrower, raising close to $3.5 billion via loans, apart from selling bonds worth another $800 million in January this year.
Experts say the rush to raise funds from abroad is mainly due to local capital markets having no depth, both in the debt and capital market segments. “Hence, companies looking for large loans or equity are now looking outside. Besides, even after paying for forward cover, foreign loans are cheaper and for companies with natural cover like exports, foreign loans are an extremely cost-effective way,” says Prabal Banerjee, president, international finance, of the Essar group.
The average rate difference between Indian and foreign loans with a natural hedge like exports is six to eight per cent. With forward cover and no natural hedge, it will come down to three to four per cent, say bankers.
“The door to door and even average maturity of forex debts has become much longer compared to project financing by Indian banks, which is not available in India. Overseas loan repayment can be structured, depending on cash flow, another positive advantage for India Inc while raising loans abroad,: he says.
The Bharti group raised $2 billion in two tranches, in March and December, by selling bonds. The company used these funds to re-finance loans taken to acquire Zain’s African operations.
Reliance, investing close to $30 bn in expanding its oil and gas business and in the telecom business in the next five years, has emerged as the largest foreign borrower among Indian companies. With its rising export income, the company has managed the volatility in the rupee’s value versus the dollar effectively.
Among oil companies, ONGC Videsh raised $800 mn in April by selling bonds and another $900 million via loans for acquisition of assets abroad. The company bought assets worth $5 billion this year from Videocon and Anadarko of the United States in the Mozambique gas block, one of the largest acquisitions of the year.
For next year, bankers say Indian companies will continue to raise funds from foreign sources until average rates in India comes down from the 13-14 per cent at present. “With slowdown, Indian companies want to save every penny. With finance cost becoming one of the biggest for Indian companies, the focus in the new year will be to bring it down further,” said the chief finance office of a large company, asking not to be named.
With bank loans in India getting expensive, local companies are attracted towards foreign loans’ low rates to fund projects,” said another CFO.
