Taking a cue from Power Finance Corporation, Rural Electrification Corporation might adopt a policy of mandatory hedging of foreign currency borrowing risks soon. As of now, REC takes hedging decisions based on market conditions only as it has no guidelines in place.
?We want to restrict open position in foreign currency borrowings up to 30% of the company’s networth. A proposal would be moved in the next board meeting. It is for the board to approve it or not,? HD Khunteta, REC director (finance), told FE. The company’s networth currently works out to Rs 12,500 crore.
Hedging is meant to manage financial risks associated with movement in the currency market and entails additional costs for the borrower. At the prevailing market conditions, hedging could increase borrowing costs by 6%. If the proposal is finally approved by the REC board, it would increase average costs of foreign currency borrowings for the company.
As on today, the company has outstanding foreign currency loans of $ 1.5 billion, of which $770 million remains unhedged. Of this, $500 million was raised by the company in January this year. The company plans to hedge its open position at an appropriate time. REC has reported 40% growth in its net profit for the third quarter of the current financial year, the company said on Wednesday.
?The profit after tax of the company has increased to Rs 664 crore in the quarter under review from Rs 474 crore in the same period of the last financial year,? REC chairman JM Phatak said in a press conference.