The external commercial borrowing markets are yet to pick up though economic recovery has been visible in recent times.
The total approvals received by India Inc to raise capital via external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs), at $1.31 billion, have dropped by about 1.5% in January 2010, as against $1.33 billion in January 2009.
However, as compared with December 2009, when ECBs stood at $1.57 billion, total ECBs in January 2010 have shrunk by 16%. In January 2010, Indian Oil Corporation Ltd (IOC) was the largest EC issuer of $500 million for rupee expenditure for a maturity of five years, according to a data released by the Reserve Bank of India (RBI) on Tuesday.
There was about 49 approvals from RBI in January 2010. However, there were no FCCB deal approvals during the month.
Jamal Mecklai, chief executive officer of Mecklai Financial, feels that it may start to get more difficult for corporates to raise capital overseas.
?My sense is that with the global credit markets getting nervous again, it may start to get more difficult to raise capital overseas. I do expect better credit demand than RBI had been forecasting and so expect domestic rates to rise,? he noted.
Mecklai suggests that RBI should now compel banks to quote their prime rates in terms of government securities. ?This would enable companies to hedge their significant domestic interest rate risk and would also drive banks to hedge their asset books, leading not only to better risk management at large but also greater liquidity in the interest rate derivative market,? he said.
Mecklai explained that currently, companies are interested in ECBs since the fully hedged cost even at a 250 basis point spread works out to less than 10% for a 5-year tenor, while at the short end (one to two years) the cost is even more attractive.