EXTERNAL COMMERCIAL BORROWINGS (ECBS) APPROVALS TOUCH $2 B IN JUNE, THE HIGHEST IN A MONTH SINCE THE LEHMAN COLLAPSE

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APPROVALS for overseas borrowings by Indian corporates have touched almost $2 billion in June this year, the highest in any month since the collapse of Lehman Brothers in September 2008.

What’s more, even though only a handful of companies have accounted for the bulk of the approvals — apart from Nacil, DLF intends to raise $300 million and PepsiCo India, $130 million — the number of borrowers accessing the external commercial borrowing (ECB) market has gone up. For instance, while only 33 firms tapped the ECB market last June, the number went up to 50 in June this year. Typically, the number of firms seeking to tap overseas markets tends to be higher in March due to the yearend rush for financial closure.

Reserve Bank of India data shows approvals for external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs) touched $1,919 million in June this year compared with $1,615 million in the year-earlier month. The data pertain only to approvals and not to actual overseas borrowings by Indian companies.

While 37 companies sought to raise funds through the automatic route, 13 companies opted for the approval route. However, since the stock market is still ruling low compared with the highs hit last year, none of the local corporates have accessed the FCCB market. Typically, FCCBs are issued during the bull market with the conversion (to shares) prices fixed at premium to the market price of shares.

Even after excluding the largest borrower Nacil ($830 million), the company created out of the merger of Air India and Indian, which accounted for more than a third of the approvals for the month, the balance $1.1 billion is still on the higher side compared with approvals in recent months.

Though RBI has allowed corporates access to overseas funds through ECB and FCCB routes for paying back earlier loans, only two companies have together borrowed a total of $55 million to buy back their earlier FCCBs. “As credit markets are improving, many Indian corporates are trying to access overseas markets. And back home, sentiment has also improved post-elections as one expects a more stable economic environment,” Indranil Sengupta, chief economist at Bank of America Merrill Lynch, said.

Says Hemant Mishr, MD and head of global markets, Standard Chartered Bank, “There is renewed interest in Indian borrowers, which is reflected in the contraction of credit spreads in both the ECB spread and credit default swap (CDS) spread over Libor. This is a consequence of increased risk appetite and the liquidity situation being a lot better now."

RBI, in its latest report on macro and monetary developments, has noted there were net ECB repayments of Rs 1,504 crore by Indian companies during April-June this year compared with receipts amounting to Rs 6,111 crore in the year-ago period. On a quarterly basis too, approvals during April-June 2009 at $2.7 billion have been much lower against $4 billion a year ago.

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