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Indian corporates raise money abroad 
(Fri, 27 May Pre-Open) 
High inflation in India has been a pain in the neck of policymakers. In a bid to tame the inflationary monster, the Reserve Bank of India (RBI) has repeatedly wielded the interest rate weapon. You would recall that over the last one year, the RBI has raised interest rates nine consecutive times.

Quite obviously, lending rates for corporates have gone up significantly. So what to do? Where to raise money from? Not so surprisingly, foreign loans are appearing quite attractive to Indian corporates. There are two main reasons for this lure- one, the considerable differences in domestic and foreign interest rates; two, the sharp drop in hedging costs.

Many blue chip Indian corporates are now able to avail fully-hedged foreign loans which are 100 to 200 basis points (100 basis points equals 1%) cheaper than domestic loans. For instance, borrowing in the US dollar has become a very lucrative proposition. Thanks to the loose monetary policy of the US Fed, benchmark interest rates in the US are close to their historical lows. So even after swapping to the Indian currency, the total cost still works out to be lower compared to domestic borrowing costs. Additionally, there has been a substantial drop in foreign currency hedging costs in recent times.

Reliance Industries completed a US$ 1.5 bn bond issue. Vedanta is also looking at foreign avenues to fund its purchase of Cairn India. Oil marketing firm Bharat Petroleum (BPCL) recently raised US$ 200 m in syndicated foreign currency loans. Many banks such as ICICI Bank are also tapping foreign funding sources.

Of course, this luxury is available to top-rated large corporates which foreign investors perceive as investment grade. Apart from foreign loans, large corporates can also raise funds in the range of US$ 500 m to US$ 1 bn through the issue of bonds in international markets.

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Jun 28, 2017 03:37 PM