With international sources of long-term funds turning into a trickle, Indian companies are increasingly tapping export credit agencies (ECAs) for raising resources for projects and importing equipment and capital goods.
J Akilan, chief representative (India) of Spanish bank BBVA said the international crisis was not over yet. In the backdrop of this, the risk-taking ability of global banks has shrunk. They are not able to give long-term loans for projects.
Data from the Reserve Bank of India on external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs) also backs the trend. India Inc raised $18.36 billion in 2008-09 through ECBs and FCCBs, down from $30.95 billion in 2007-08. Indian companies have raised a mere $298.63 million in April this year.
ECAs have extended the line of credit to India banks. In March, ICICI Bank, through its Hong Kong branch, signed two agreements for export credit.
The Japan Bank for International Cooperation (JBIC), an international wing of Japan Finance Corporation, will provide credit line up to $100 million. The Export-Import Bank of China will provide buyers credit facility for $98 million.
Outi Homanen, senior advisor, Finnvera, an entity owned by the government of Finland said ECAs were rarely approached by companies when the global financial markets were supporting fund-raising activity. Now, when markets are no longer liquid, they are turning to ECAs.
ECAs, which are backed governments, are able to provide long-term credit to
high-value projects, said another senior official with an American bank.
"We are giving guarantees (insuring risks for financing by banks). The direct funding to companies activity has begun so exposure is low," Homanen said.
Its commitments to India have grown three-fold to $600 million in last 12 months.
Peter Nesbitt, regional vice president Asia, Export Development Canada said despite the challenging financial environment, Export Development Canada (EDC) has seen substantial growth in its business in India.
The total business written by EDC until May 2009 has touched Canadian dollar 500 million, up by 12 per cent over same period in 2008.
On the pricing of credit, ECA officials said the pricing of credit is linked to the market benchmark and there will be no cuts. The transactions are driven by commercial considerations.
Asked about impact the negative outlook on India would have on providing assistance to India companies, Finnvera advisor said it is (negative outlook) is a minor factor. India and China are only growing markets and there is competition in the market to get deals from these two nations.
EDC, which has been part of consortium that funded Tata Motors to acquire Jaguar and Land Rover, clocked business, including debt finance (ECBs) and insurance cover of Canadian dollar 1.8 billion in 2008 and expects to do the same level in this calendar year.
