Capital goods push ECBs 18%

With risk appetite for Indian paper improving, Indian companies managed to mop up significant amounts of money through external commercial borrowings (ECBs) last fiscal (2009-10). Companies received approvals to raise $21.67 billion compared with $18.36 billion in 2008-09, an increase of 18%. In March 2010, companies raised $4.32 billion, up 300% over $1.11 billion mobilised in March 2009.

Most companies are raising these funds to import capital goods and modernise plants. Along with large companies, mid-sized and small companies are choosing the ECB route to raise money.

"More companies are looking to borrow through ECBs, but they will also keep a close watch on interest rates," said Prakash Subramanian, MD & regional head, capital markets, South Asia, Standard Chartered Bank.

Post the Lehman crises, when the ECB window had dried up, overseas funding was available at (London Interbank Offered Rate) LIBOR (base rate) +500 basis points (bps). However, with an improvement in liquidity scenario globally, a AAA Indian corporate can now borrow at close to LIBOR+200 bps.

Manmohan Singh, managing director (head-primary debt markets), India at Royal Bank of Scotland (RBS) observes that with an increase expected in local interest rates and recent tightening of spreads for Indian paper in international markets, overseas borrowing seems to be a competitive option.

"There is a lot of interest from the corporate and institutional space for overseas funds. In fact, ECBs and ECA loans continue to do well. There are pipelines of projects which need to be funded," says Hemant Mishr, managing director and head of global markets, South Asia, Standard Chartered Bank. He adds that the credit spreads have compressed and that there is higher appetite for funds.

RBI data for March 2010, shows that as many as 73 companies have opted for ECBs. Reliance Industries (RELIANCE.NS : 1018.9 -1.75), Reliance Infratel, Nacil, Aircel and PFCL account for more than half the borrowings.