Housing finance companies (HFCs) may be able to access external commercial borrowings (ECBs), a route allowed in the Budget, while the aviation and power sectors would face hurdles in accessing this financing window.
Arrangers are of the view that prominent HFCs could tap funds with ease despite the stigma attached to the mortgage industry since the sub-prime crisis of 2008. “Housing finance companies will be among the best-placed in terms of ECB access for a large part from specialised financial institutions that focus on this sector,” Brijesh Mehra, managing director, country head-international banking, RBS Markets and International Banking, told Business Standard. “There are some good companies — for example, HDFC — which can tap funds at a reasonable rate despite the challenges faced by the sector in recent past.”
ECB access was one of the most sought demands of HFCs. ECBs are loans Indian firms are allowed to take from abroad. Budget 2012-13 allowed this access for affordable housing projects, rupee debt re-financing by the power sector and for raising funds to meet working capital requirement, of the aviation sector.
Currency-wise, ECB loans in dollars would be the most feasible option for HFCs. “The most likely currency will be the US dollar for borrowings as this has the most liquid hedging market against the Indian rupee,” Mehra of RBS said.
Though many HFCs do not have an international standing, the company financials would suffice to get approvals for tapping overseas loans. “International ratings of the bonds might be looked at while approving ECB loans, but having international rating is not very important,” said Ajay Manglunia, head of fixed income, Edelweiss Financial Services.
Arrangers say company accounts, extent of debt on the balance sheet, and credit history would be crucial in getting loans, via ECBs. The aviation sector would find it difficult to raise foreign loans as airlines are cash-strapped and have not been able to repay bank debts. According to arrangers, if Indian banks are ready to give guarantee for ECB loans, the situation can improve. But banks may not come forward. “Aviation sector may find it the toughest to tap ECB funds, given the negative press and challenged business models. But if Indian banks are ready to guarantee the loans the aviation companies may be looking to raise, access can get a little better,” said Mehra.
The power sector’s path to ECBs is clearer than aviation’s. But the lender pool available to them could be limited.
“The credit appetite will be somewhat lower for the sector. Liquidity will be driven by Asian banks — China and Japan being two countries as cases in point,” Mehra added.
But at least two airlines seem ready to give ECBs a shot. M Shivakumar, senior vice-president (finance), Jet Airways, said, “The airline will explore the option of raising funds through ECB route. This will be utilised to fund the working capital requirement due to increasing operations. Forty per cent of the airline revenue is in dollars and thus we will be in a position to repay such borrowings without getting impacted by exchange rate movement.”
Separately, the airline is looking to raise Rs 1,000 crore from fund and non-fund facilities to cover its growing operating costs. An Air India executive said raising working capital locally is costly and, currently, the airline is paying 12 to 14 per cent interest on working capital debt. “We can tap the potential (of ECBs),” he added. Air India has Rs 22,000 crore working capital loans and its debt recast plan is awaiting approval. ECB for working capital requirements of the airline industry has been permitted for one year, subject to a total ceiling of $1 billion. Currently, ECBs form 30 per cent of the total external debt.
