Indian Companies Go Overseas To Repay Their Loans

With the higher interest rates still prevalent in the country, many companies in India are looking forward to cheaper loans in the overseas markets. As that the rates in the US and Japan are almost at zero compared to the base rate in India for most of the banks is still at 8% or more. After cutting the policy rates in the month of April 2012, RBI has maintained status quo for the last few quarters inspite of repeated demand from the government as well as from the industry leaders. This arbitrage prompts Indian companies to go overseas and raise funds. In total for different purposes in the month of October and November the total overseas borrowing through the automatic route stands at USD 3.5 billion and through the approval route stands at USD 2.13 billion taking the total to USD 5.6 billion.

However, in the following article we will talk about those companies that have raised funds either for refinancing of loans or redemption of FCCBs.

In last two month data we see that there are 5 companies that have raised money in the overseas markets for refinancing of old and rupee loans. In total these companies have raised USD 575 million through the FCCB and the ECB. The companies have taken the FCCB route is GTL Infrastructure and the others that have taken the ECB route are Hindustan Oil Exploration, Essar Steel, Monnet Ispat and Alok Industries.

There are another 5 companies that have raised the funds for redemption of FCCB’s. These FCCB’s were issued by companies expecting investors to convert them into equity. However, after the global meltdown the valuations crashed and companies realize that debt has to be paid back and that too at a costlier exchange rate. In October and November USD 239 million has been raised by 5 companies for the aforesaid purpose. The companies that have raised money for redemption of FCCB’s are Sintex Industries, Pokrana, Firstsource Solutions, Assam Company and Welspun Corp.

For the aforesaid two purposes these 10 companies have raised USD 814 million. One of the reasons for the companies going overseas is that comparatively smaller companies find it difficult to issue bonds as the borrowing cost is capped by the RBI at 500 basis points over LIBOR, below which they are not able to raise funds. Therefore, there are many banks in India that have started to cut their base rates which will in turn attract companies preventing them from going overseas. It is now need of the hour that the RBI becomes proactive and move ahead in easing the rates, which is being indicated by the banks.