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Rupee fall may inflate corporates’ foreign loan bill by $2 bn

Rupee fall may inflate corporates’ foreign loan bill by $2 bn
PTI
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First Published: Sun, Sep 25 2011. 05 54 PM IST
Updated: Sun, Sep 25 2011. 05 54 PM IST
New Delhi: The falling value of rupee may impact hard the profitability of the Indian companies, which have tapped overseas loans, and their bottomlines are likely to take a hit of over $2 billion this year.
The corporates have been increasingly tapping overseas loans -- mostly in the US currency -- to save costs arising out of higher interest rates and liquidity constraints in the domestic market in the recent months, but the falling value of rupee seems to have negated the benefits, experts believe.
Rupee has depreciated by over 12% to 50 per dollar mark from its near 44 level against the US currency at the beginning of August.
It was the worst performer among major Asian currencies with a decline of 5% in the past week alone and this downtrend has added to the woes of the companies having gone abroad for their borrowing needs.
Indian companies have borrowed close to $21 billion in foreign currencies through ECB (external commercial borrowing) window between January and July this year, as against a total amount of $18 billion in entire 2010.
The entities having raised such overseas loans this year include Reliance Industries, NTPC, Mundra Port and SEZ, Indian Oil, Bharat Aluminium, Vodafone Essar, Air India, GAIL, Adani Power, JSW Steel, Aircel, Tata Tele, Idea Cellular, Suzlon, IDFC, RCom, REC, Indian Railway Finance Corp, M&M and BPCL, as per data available with the RBI.
In July itself, as many as 100 companies tapped overseas loans totaling over $4 billion. This included Mukesh Ambani-led RIL raising $1.09 billion for refinancing its old loans, Mundra Port ($150 million for ports business) and Indian Oil ($500 million for import of capital goods).
Besides, a number of telecom companies have raised overseas loans in recent months to refinance earlier rupee loans for payment of their 3G spectrum fees.
Analysts said that liquidity deficit and relatively higher interest rates in domestic market were prompting the Indian companies to tap cheaper dollar loans for funding their domestic business activities, imports, overseas acquisitions and refinancing of existing rupee loans.
However, the situation has turned around with a sharp rupee depreciation in past few weeks from a relatively stable trend in earlier months of the year, because of which many of the companies did not even hedge against the currency fluctuation risks, analysts said.
As a result, many of the companies might have to book mark-to-market losses on their books for this year unless the rupee reverses its downward trend, experts said, while adding that the current level of rupee depreciation pegs the estimated hit on their profits at over $2 billion.
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First Published: Sun, Sep 25 2011. 05 54 PM IST
More Topics: Rupee | Dollar | Currency | Markets | Loan |