New Delhi: In a move to provide easier access to funds for infrastructure firms, the government on Monday raised the overseas borrowing limit to finance their rupee expenditure fivefold to $500 million, but some analysts said the move may be too little and too late, given the global credit crunch.
Recognizing the shrinking levels of global liquidity, the government also allowed firms to borrow abroad on costlier terms. The new norms allow companies to sell seven-year paper at a spread of 450 basis points more than the London interbank offered rate, or Libor, the rate at which banks lend to each other in London.
The spread over Libor was increased from 350 basis points. One basis point is one-hundredth of a percentage point.
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“It has not come a day too soon,” said Vinayak Chatterjee, chairman of Feedback Ventures, an infrastructure advisory firm.
Indian firms are facing difficulties in accessing funds locally after RBI in July raised its benchmark rate to a seven-year high to fight the fastest inflation in 16 years.
But some analysts said the changes in the external commercial borrowing, or ECB, policy may not go far enough to help local companies, given that the meltdown in global financial markets was drying up liquidity while appetite for emerging-market debt is low.
ECB policy for companies other than infrastructure firms remains unchanged and they would continue to be allowed to borrow up to $50 million to finance rupee capital expenditure under the so-called approval route.
The $500 million limit per company in a year under the automatic route has also not been changed. Similarly, the end use of foreign currency expenditure for import of capital goods and overseas investments, the average debt maturity period, and refinancing of existing ECBs, too, remain unchanged.
Some economists are cautiously optimistic.
“This policy change will help in dollar inflow though the quantum of inflow may not be too significant immediately,” said Indranil Pan, chief economist with Kotak Mahindra Bank Ltd. “However, it will help infrastructure companies which are facing the problem due to a tight liquidity situation as there is no adequate long-term money available in the domestic market.”
Still, any such step is unlikely to help infrastructure companies in a big way in the short run, HDFC Bank Ltd chief economist Abheek Barua said.
“In the current state of the international financial system, there is no appetite for emerging markets,” Barua said. “ECB rates have gone up so much in the recent past that it is almost impossible for any Indian company to afford to borrow at those rates.”
Infrastructure companies too were cautious.
“Relaxing the regulations is okay, but we have to see if there are enough funds in the market,” said an executive at GMR Group, which has interests in roads, airports and power sectors, among others. The executive, who did not wish to be identified because he is not authorized to speak to the media, said most of GMR’s borrowing was domestic, because when accounting for the cost of hedging for currency risks, international loans cost almost the same as domestic borrowing.
Currently, much of the infrastructure financing is local, apart from the power and airport sectors. Domestic banks had outstanding loans of Rs2.03 trillion to the infrastructure sector as of May this year.
A Mumbai-based telecom analyst said the relaxation would help telecom firms to raise funds abroad to bid in this year’s auction of spectrum, or airwaves, for so-called 3G services that would enable their networks to offer services including video calls and high-speed data transfer. “For 3G spectrum auction, it cannot be funded through internal accruals, and ECB offers access to cheaper debt,” said Harit Shah, an analyst at Angel Broking Ltd.
R. Jai Krishna and Sanat Vallikappen contributed to this story.