Mumbai: Indian companies have to redeem around $44.57 billion of overseas debt between now and December 2009 in an economic environment where money has become scarce and costly. This debt funded domestic expansion and overseas acquisitions.
The list of around 60 such firms includes leading Indian companies and commercial banks. Companies that are part of the Tata group, Aditya Birla group and Sterlite group feature in it. So do the Mukesh Ambani-controlled Reliance Industries Ltd and Reliance Petroleum Ltd, and the Anil Ambani-run Reliance Infrastructure Ltd. India’s two largest banks—State Bank of India and ICICI Bank Ltd—also appear on the list, culled from Bloomberg data.
“This is a pretty big issue, as the cost of borrowing could remain high for some time to come,” said Anindya Dutta, managing director and head of capital markets in India for Calyon Bank. The French bank is one of the biggest players in the loan syndication business in the region.
Also See List of the companies that need to repay overseas debt by December 2009
To be sure, some of the companies, such as Hindustan Zinc, say they have repaid their loans ahead of schedule.
Mint couldn’t independently ascertain how many companies had done so. Most companies, however, usually pay their debts only when they are due or, if the foreign currency is appreciating, replace foreign debt with local borrowings.
There has been a spurt in credit in the Indian banking system this month and, according to the Reserve Bank of India, or RBI, this is on account of “substitution” of overseas debt with local borrowing. This will intensify further and put pressure on the local banking system which is already experiencing a liquidity crunch.
RBI last week raised the borrowing cost for overseas loans of more than five-year tenure to 500 basis points over the six-month London interbank offered rate, or Libor, an international benchmark rate for such loans. For three-five-year overseas loans, companies have been allowed to pay 300 basis points over Libor. One basis point is one-hundredth of a percentage point. Six-month Libor is now veering around 3.48%.
Also See Debt Dampener (PDF)
However, according to investment bankers and arrangers of overseas loans, even after this relaxation, Indian firms will not find it easy to borrow funds overseas. According to the treasury head of a large company which is planning to raise foreign debt, there is “simply no money around”.
“It (interest rate) is quoting 500-600 basis points over Libor,” said this person who did not want to be named.