Public sector companies are increasingly eyeing borrowings from the highly liquid Japanese market to get into cheaper funding for their expansion plans. Companies such as NTPC, HPCL, BPCL and IOC that raise overseas funds frequently are shifting to borrowings from Japanese banks after the US market turned volatile in light of the US Federal Reserve’s plans to pare down it’s quantitative easing programme.
?Part of the reason that the Japanese markets are attractive is because they are very liquid and they are looking for lending opportunities especially to state-owned companies,? a Hong-Kong-based investment banker told FE. A lot of liquidity has been freed up in the Japanese market after the country’s central bank stunned markets in April by pledging to double the supply of money in two years through purchases of government?bonds?and risky assets.
State-owned power major NTPC, for instance, is planning to raise $400-$500 million in overseas loans, of which the company plans to raise a major chunk from Japan.
?We see Japanese loans are cheaper than the US at present and if the current market conditions continue, we could see borrowings from Japan increasing,? GK Sadhu, the executive director, finance, at NTPC, said in a recent interview with FE.
While the spreads over London interbank offered rate (Libor) in Japan are not much lower than the American market, the availability of funds makes the world’s third largest economy after the US and China an attractive borrowing hub for Indian companies, the investment banker said. According to bankers, while three-year loans by a public sector company can be raised at around 100 basis points (bps) over Libor, five-year money can be raised around 130-150 bps over Libor.
State-run NTPC in February had said it would raise $250 million in loans from State Bank of India and Japan-based Mizuho Corporate Bank. Other major Japanese banks that are keen on lending to Indian public sector companies include Sumitomo Mitsui and Mitsubishi UFJ.
“Japanese banks such as Sumitomo are usually the first to approach us for lending money,” KV Rao, HPCL director finance said. HPCL is planning to raise up to $500 million from the overseas market and sees Japanese market as the most favourable market to do so. Rao said Japanese banks are keen to offer loans to the company and offer the most attractive rates at present.
The company has embarked on a R45,000 crore expansion drive to bolster its refining capacity to 42 million tonne per annum by FY17. The company has budgeted capital expenditure of R6,500 crore on consolidated basis for the current fiscal. ?We will raise at least $400-$500 million from overseas markets this year but anymore would depend on the financial markets,? he added.