ECB move to help once mkts stabilise

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New Delhi: The changes in external commercial borrowing (ECB) norms have opened a wide window of financing for corporate India, especially the real estate and non banking finance companies (NBFCs); although analysts note sourcing funds in the current uncertain environment could be a major challenge.

“ECB relaxation may not immediately help but once the conditions in the financial markets stabilise, companies would be able to raise overseas funds,” said Standard & Poor’s Asia-Pacific chief economist Subir Gokarn. Developers were upbeat about the changes and industry executives said NBFCs such as IDFC, IL&FS and Srei Infrastructure Finance would be able to access overseas funds.

The government on Friday removed all-in-cost ceilings on interest rates at which companies can raise ECBs, permitted companies developing ‘integrated townships’ and NBFCs financing infra projects raise external loans. The government will review these measures after six months, the finance ministry said in a stimulus package announced on Friday. The government has also allowed hotels, hospitals and software companies to raise up to $100 million for both foreign currency and rupee expenditure for permissible end use excluding land acquisition. Hitherto, entities in these three services sectors were allowed to raise ECBs only for capital goods’ import in foreign currency.

Srei Infrastructure Finance CMD Hemant Kanoria said his company has already obtained sanction from multilateral agencies to raise up to $450 million and the government move would enable them to raise these funds. “We should be in a position to raise it ($450 million),” Kanoria told FE. He said the interest cost for his company could be 200-300 basis points over the London Inter Bank Offered Rate.

NBFCs have been allowed to raise funds from multilateral, regional and government owned development financial institutions under the approval route. The government has further mandated that these institutions cannot lend more than one-third of their total lending in India to NBFCs. “While considering the applications, RBI will take into account the aggregate commitment of these lenders directly to infrastructure projects in India. The direct lending portfolio of the above lenders vis-à-vis their total ECB lending to NBFCs, at any point of time should not be less than 3:1,” the finance ministry said in a separate statement on ECBs. While the removal of the cap on interest ceiling would mean more companies having lower ratings can access overseas funds, difficult credit markets abroad could mean small and medium enterprises may still be left out of this borrowing channel. Even top notch companies may have to pay higher interest rates to obtain these funds, analysts said.

The other two relaxations for realty and infra financing NBFCs mean RBI and the government has given up their reticence of closing this window for these two sectors in response to a difficult credit conditions at home. The RBI has shut the ECB channel for integrated townships for the fear it could stoke a real estate bubble. NBFCs were not allowed to raise ECBs as it complicates capital account management and exposes these companies to currency risk.