IDBI, IFCI plans ECBs to fund steel, textile debt recast

 While IDBI is expected to approach the finance ministry to raise $500 million shortly, IFCI is planning to raise $150-200 million, though the timing has not been decided. ICICI Bank recently received government nod to raise $ 300 million through ECB.

 Executives with the financial institutions said the funds will be used for restructuring the steel sector's debt. Some part of the external debt will also be channelised into textiles with the government clearing a debt recast package for textiles firms.

 The executives said ECBs will give them a spread of around 5 per cent since borrowing costs abroad were in the region of 2.5-3 per cent, while loans to textiles and steel firms will be extended at 8-9 per cent on a rupee basis.

 IFCI sources said the institution may seek the support of other institutions and the government in raising foreign currency loans. It had earlier expressed its inability to meet certain elements of the steel restructuring package, which envisaged converting 40 per cent of the domestic term loan into foreign currency liability for companies that export part of their produce. IFCI had said that it would be difficult for it to access funds from the international market given its poor finances and low rating.

 The finance ministry has been disallowing access to international markets for domestic companies to raise debt. Instead backed by the rising foreign exchange reserves, it has been encouraging companies to tap the local markets.

 But both the steel and textiles recast packages approved by the Centre this year, have said that it is essential to raise loans from abroad to make the funding viable for the two sectors. The steel sector corporate debt package has been authored by IDBI, while the textile is scripted by the N K Singh committee.

 Finance ministry officials have also said that they may have to allow these loans by making an exception to the current policy of restricting ECB. The recently cleared ICICI debt package is also meant to partially finance the steel sector.