Even as the government announced approvals for a fresh round of ECBs, the list of companies which have decided to scrap their borrowing plans abroad is growing. Deterred by the investor apathy for India in the wake of downgrading by Moody's, and the tremendous currency volatility in the home currency markets, the companies are seeking to take refuge in Indian money, which the system is currently liquid with.

Indian Rayon has decided instead to wait and watch for the financial situation to evolve, before raising the required funds (information was not available on how Indian Rayon proposes to raise the Rs 80 crore-odd that was supposed to flow in through the ECB). The Kumarmangalam Birla-controlled company has decided that under the present financial situation, the cost of international borrowing is too high for it to takeadvantage of the government clearance it already has for such an ECB programme.

"With the London Inter-Bank Offer Rate currently ruling at around six per cent, allowing for a spread of four per cent, and hedging cost of around 12 per cent, it is extremely unlikely that any company will want to go for ECBs to fund its projects," said a source close to Indian Rayon.

Grasim Industries, another major diversified associate of Indian Rayon, announced earlier this week that it had raised five-year rupee funds aggregating Rs 150 crore from the Indian bond market at a fine rate of 13.5 per cent. "Grasim has shown how it is perfectly possible for good Indian companies to raise money from the Indian market at good rates," said the source.

Grasim's issue opened on June 8 and evoked an excellent response from investors. It was oversubscribed, and closed on the first closing date of June 22. Indian Rayon managed to bring down its interest charge from Rs 120.42 crore in 1996-97 to Rs 108.78 crore in the last fiscalthrough prudent financial management. This was done through repayment of Rs 140 crore of debt, including $30 million forex loans, and prepayment of Rs 40 crore domestic debt from financial institutions.

It is believed that the company will try to bring down the interest burden further through prepayment of rupee loans during the current fiscal.Indian Rayon suffered its first drop in net profit for 1997-98 in the last five years despite a 10.7 per cent increase in turnover due to a dismal first half. Net profit for the 1997-98 fiscal dipped to Rs 212.51 crore against Rs 214.77 crore posted in the previous year.

Like the group flagship Grasim Industries, Indian Rayon attributed the crash in profit margins to the persisting downcycles in its businesses. Indian Rayon's turnover increased to Rs 1,817.02 crore in the last fiscal against Rs 1,641.14 crore in the previous year. The company's net sales increased to Rs 1,584.73 crore from Rs 1,412.82 crore recorded in 1996-97.