Dollar borrowings by Indian companies in the first 11 months of 2014-15 totalled $26.3 billion, a fall of 11% y-o-y, RBI data show.
Fund raising through external commercial borrowings (ECB) in February was $2.3 billion, nearly half of what was raised in the corresponding month last year. The boost to the ECB amount was mainly from a single loan taken by Reliance Industries. RIL borrowed $750 million through a 30-year loan to refinance old and costlier rupee loans. Exim Bank borrowed $500 million for on-lending.
Owing to high hedge costs, forex borrowings for rupee expenditure and refinancing earlier rupee loans were only $62 million in February. Bankers said since RIL was a top-rated and a large Indian company, it raised funds at low rates and would have benefited despite adding hedge costs. “Companies like RIL can get the benefit of at least 1% even if they fully hedge their forex borrowing,” said the treasury head of a foreign bank.
Out of the $26.3 billion raised during April-February, only $1.9 billion was towards rupee expenditure and refinancing old rupee loans. In contrast, companies had used $4.8 billion of forex loans for the same in the corresponding period in 2013-14.
Hedging costs have been climbing since February after having fallen for five months. The five-year Mumbai Interbank Forward Rate (MIFOR), a proxy for hedging, has risen 50 bps since February to 7.17% now. The implied yield on the benchmark one-year dollar/ rupee forward premium has risen around 20 bps.
Bankers say the cost of borrowing through a fully-hedged forex loan would be around 8-8.5% for a top-rated company.