Corporates which have resorted to overseas borrowing for raising capital are likely to see erosion in their balance sheets in the current financial year largely because of the rupee depreciation and erosion in stock prices, a latest report by Credit Suisse said.
It has been estimated that the total translation losses at current rates could be as high as 12 per cent of the profit before tax of 2008-09, Credit Suisse said, adding “with the fall in stock prices, most FCCBs may not be converted. Redemption of premium accounting thus could become an issue of concern”.
Translation losses are those that arise from the conversion of Foreign Currency Convertible Bonds (FCCB) due to fluctuation in the foreign exchange.
“With reversals in currency and stock markets unlikely, these would be one-time cash losses,” Credit Suisse said.
Indian companies have been increasingly borrowing in foreign currencies, with the proportion of foreign currency debt rising from 15 per cent in 2002 to 25 per cent currently.
