The government is looking at giving the firms being asked to raise capital from abroad via quasi-sovereign bonds an extra cushion of comfort by providing immunity to currency risk involved in the exercise. Additionally, sources said, the government would also seek to improve sentiments in currency market by asking oil marketing companies (OMCs) to cap their dollar payments for crude imports to $350 million a day. Based on Q1FY14 import data, OMCs spent a daily average of $466 million onpetroleum imports.
On Monday, the government had announced a host of steps to attract additional dollar inflows of $11 billion in FY14.
Absence of exchange rate risk and an explicit government guarantee for quasi-sovereign bond issuers are meant to ensure that the projected inflows indeed materialise and help finance the current account deficit, conservatively estimated at $70 billion for FY14. Monday’s measures included asking three state-owned financial institutions — IIFCL, IRFC and PFC — to raise a total of $4 billion in the current fiscal through bonds. Analysts said the government guarantee will give these firms a pricing advantage of at least 100 bps over overseas bonds not backed by such guarantee.
Sources said apart from these institutions, several PSUs would also be urged to raise money abroad via bonds. These may include ONGC, NTPC, NHPC, GAIL and SAIL, apart from the three OMCs — IOC, HPCL and BPCL.
This means the OMCs which have already been asked to raise external commercial borrowings worth $4 billion for working capital requirements will have both routes – ECB and bonds – to raise money abroad.
Analysts feel it would not be easy for the three OMCs to raise $4 billion through loans, although the new window for raising working capital funds might help. The ECB route for working capital has been opened subject to the trade credits and ECBs for OMCs remaining within the overall limit.
The government reckons OMCs and other PSUs might find tapping the bond route easier than raising funds through ECBs.
A senior official said a meeting next week would finalise names of state-run companies which can raise money overseas through dollar-denominated bonds.
Samir Kanabar, infrastructure expert at Ernst & Young said: “if these quasi-sovereign bonds are raised and settled in dollars, lenders will be completely risk-free as anyway, these are government-owned companies supported by sovereign guarantee. So, many foreign lenders may be interested in investing in such bonds.” Kanabar said the funds will be invested