External commercial borrowings (ECB) by companies in the first four months of FY16 have come down nearly 22% against the same period last year, data from the Reserve Bank of India (RBI) show.
Companies’ ECB between April and July stood at $8.42 billion compared with $10.27 billion in the corresponding period in 2014, reflecting a 21.97% fall. In July, the ECB figure stood at $2.14 billion which is way below the $3.7 billion seen in July 2014.
Manoj Rane, the MD and head of global markets and treasury at BNP Paribas India, observes that the drop in ECB might be due to the sluggishness seen in the investment cycle pick-up.
“Significant amount of ECBs are seen when the capital investment cycle picks up. It is evident there hasn’t been a turnaround in the capital investment cycle. This obviously means lesser overall borrowing — ECB or otherwise,” he said.
Rane also points out that ECBs of significant amounts can only be done by corporates that have a good rating.
“Considering that a few Indian companies have a global rating of investment grade or better (sovereign itself being rated lowest investment grade BBB-), it may be possible a few large ticket ECB transactions in the corresponding period last year may have inflated the total number,” he said.
RBI data show that some major borrowers in July were Adani Ports and Special Economic Zone that borrowed $650 million in two tranches, Housing Development Finance Corporation borrowed $500 million and REC borrowed $300 million.
Moreover, a significant drop in the domestic corporate bond yields might have also led to a shift from foreign currency borrowings as the interest rate differential has narrowed.