Debt cannot be a panacea for poor business performance. And Corporate India seems to be learning this lesson the hard way. Domestic interest rates in the country have not shown any signs of easing for more than a year now. Moreover banks saddled with high NPAs are getting tougher in advancing loans to companies. Therefore companies wanting to raise funds are increasingly looking towards overseas borrowings that are also cheaper. But it seems that overseas markets can no longer be taken for a ride. Companies with weak business models cannot simply use their name or clout to raise funds in the international markets.
In a recent development two big names in Corporate India were jolted out of their stupor. Due to lack of interest by investors, the over $200 m debut US dollar bond issues of Reliance Communications (RCom)and Lodha Group were called off recently. However the reason is not difficult to see. Anil Ambani controlled RCom has huge debt on its books. Even the prospects of its faltering CDMA business have been clouded by the entry of Mukesh Ambani controlled Reliance Jio Infocomm that will launch services in 2015. On the other hand real estate developer Lodha Group has been hit by the slowdown in residential demand. As a result not only its current projects are getting delayed but also its expansion plans have been derailed.
This spells more trouble for leveraged companies going through a rough patch. Unless these companies pull up their socks and bring about material improvements in their business operations, it will be difficult for them to bail out by simply raising funds in domestic or international markets.