Companies leveraged at 2008 levels

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SummaryWith the rupee having lost close to 18% this year, Indian companies with dollar liabilities are in a spot.

With the rupee having lost close to 18% this year, Indian companies with dollar liabilities are in a spot. Although their fundamentals may not have deteriorated too much, the cost of borrowing overseas has risen sharply in the last six months given the problems in the eurozone.

V Anantharaman, managing director, co-head, wholesale banking, South Asia for Standard Chartered, believes that funds will continue to remain expensive for some time.

Anantharaman, who also oversees the M&A space, tells Shobhana Subramanian that while there may not be too many multi-billion deals in the near future, companies are tapping PE funds through both equity and mezzanine deals.

There seems to be a fair degree of concern on foreign currency repayments coming up …

In terms of maturing ECBs and FCCBs, people have borrowed for a variety of reasons, including projects, acquisitions and general corporate purposes. In some cases, the repayments have been predicated on cash flows. In other words, these are amortising loans, and companies would have already been paying them off. We don’t really hear of any defaults, though it’s possible some loans may have been restructured. The issue that remains is of the larger bullet loans where repayments are coming up; in most of these cases they will need to be refinanced. Given that many of the FCCBs may not be converted into equity, RBI has opened a window where companies can start the process of refinancing six months prior to maturity. But this is a somewhat short time-

frame so companies are initiating discussions much earlier and I feel this is going to be a significant part of the activity in 2012.

How tough is it going to be for companies to refinance loans?

From a credit environment point of view, the bulk of corporate India has reasonably good fundamentals; even if they have slowed down a bit, there are no real downgrades. There are some problems for some specific sectors, as pointed out by RBI. So, from a credit perspective, there should be no major issues. The question is, who do they get the loans from? The bank market has changed quite dramatically since the time they went in for these loans. In the syndicated loan market, you don’t have underwritten syndications as you had three or four years ago. What you have is a best effort basis; fewer banks are willing to hard-underwrite deals and then get other banks. That’s because the European

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