Jindal Strips Ltd (JSL) has converted existing rupee loans worth Rs 45 crore into foreign currency loans to fund working capital needs. This will lead to lower borrowing costs since the rate of interest on forex loans are nearly 4 per cent lower than the borrowing cost on rupee loans.
A senior JSL official said the company's working capital requirement in the current year is around Rs 200 crore.The forex loans were arranged with the help of the State Bank of India and its associate, State Bank of Patiala.
The company, however, does not have a natural hedge against rate fluctuations. This is because its import needs are higher than the amount realised through exports of its finished products.
In the absence of a forward cover, the company is banking on the stability of the rupee. Even if a 4 per cent margin is kept for depreciation of the rupee, the company still stands to gain because of the 4-5 per cent interest differential between rupee and foreign currency loans.
Interest burden on rupee loan varies between 16 to 18 per cent whereas the interest on a dollar loan comes to Libor plus 3 per cent which adds up to just around 8 per cent.
The company has also decided to raise Rs 30 crore through the issue of commercial paper next month. The issue has been rated A1 by Crisil. The rate of interest on CP is currently ranging between 9 and 11 per cent.
Banks are borrowing from the call money market to invest in commercial paper since the average rate in the call money market in the last two months has been ranging between 4 and 5 per cent.
Banks are looking for ways to park their funds in the short term period, and commercial papers by corporates for a short-term ranging between 45 and 90 days suit their purpose.
