Rising Yen hits India Inc

Indian companies with borrowings in the Japanese market find themselves in a jam with the yen appreciating against the dollar.

Most domestic companies have not covered their position while taking yen-denominated loans, said R Shankaraman, executive vice-president, Larsen & Toubro (L&T).

The total exposure of Indian companies in the Japanese market is Rs 6,000 crore to Rs 8,000 crore. The list of companies includes Reliance Industries, L&T, Wockhardt, Ranbaxy and Bharti.

"The cost of forward cover would have offset the low interest advantage in the Japanese market," he pointed out.

A lot of companies have gone for short-term credit - 180-days or 360-day credit, suppliers' credit and buyers' credit. They have also borrowed in yen FCNR (B) to replace high-cost rupee loans or working capital loans.

The yen has appreciated nearly 6 per cent in the last 10 days from 121 to 114 a dollar. Shankaraman said since the yen was a highly volatile currency, Indian companies should be able to recoup the loss they were incurring.

The yen was depreciating three months ago, indicating that it might slide against the dollar in the future as well.

"Companies that had not hedged their risk, are going to take a hit to the extent of this difference. Now, they have to pay more dollars for the yen loans," said Subramanian Sharma, director, Greenback Forex Services.

Two years ago, when US interest rates had increased and interest rates were also ruling high in countries like the UK and Australia, many Indian companies took advantage of the low interest rates on yen loans.