Indian Firms Seek More Forex Debts as High Local Interest Rates Bite

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Indian Firms Seek More Forex Debts as High Local Interest Rates BiteWith local interest rates still high, Indian banks and companies have turned to international debt market to finance their working capital requirements and refinance costly rupee loans.

The firms have raked in debts worth $5.6 billion since January. Last year, the figure totalled $16 billion, which was up 60 percent from the previous year’s amount, according to the Economic Times.

State Bank of India is the biggest borrower so far, after it sold bonds valued at $1.25 billion to foreign investors. Second on the list was Oil India, which issued its first foreign bond for $1 billion on Tuesday.

Analysts have cited the high debt-servicing costs and thin margins due to the sluggish economic growth for the rising trend in forex borrowing. Given the amounts raked in so far, most investment bankers bet that 2014 will outstrip 2013 record.

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The word out so far is that nearly $6 billion worth of bond sales are being planned before July by companies such as Bharti Airtel, which is seeking $2 billion. Other firms include Rural Electrification Corporation with $1 billion issue, IFCL with $1.5 billion and Power Finance Corporation which is seeking up to $700 million.

ONGC Videsh also plans to raise $500-700 million to help finance its acquisition of a Mozambique oil and gas block. It will use part of the proceeds to refinance a $2.2 billion debt.

Last May, Indian firms nearly halted their plans to raise funds from foreign sources over talk by the U.S. Federal Reserve to slash its stimulus. This resulted in only three companies issuing bonds; Bharti Airtel with a 750 million euro issue in December; ICICIBSE Bank’s November $750 million issue and HDFCBSE Bank’s October $500 million issue.

Despite this, local firms can save interest costs of about 5 percent if they seek funds abroad. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Yashu Gola at yashu@forexminute.com