ECBs, FCCBs stages a comeback with India Inc

There seems to be a resurgence in dollar borrowings by Indian corporates. Compared to less than one billion raised each in June and July, Indian companies have raised over $2.5 billion by way of ECBs and FCCBs in August, CNBC-TV18 reports.

The greenback is making a comeback with India Inc. External commercial loans, which appeared to be losing their sheen in the past three months have again become attractive.

While in March companies raised nearly $4 billion via ECBs and FCCBs, in April and May they raised just a billion dollars. In June the figure fell to $922 million while July is also estimated to be below $1 billion.

However, come August, and India Inc. got into high gear by raising about $2.5 billion. With the rise in Indian interest rates, ECBs and FCCB funds are cheaper compared to domestic rupee funds.

Anil Ladha, Sr VP, ICICI securities, says, "The cost dynamics have come back to this market and companies have the pricing advantage of nearly 1 per cent if you take hedging costs and with-holding tax in view."

Not counting hedging and withholding costs, foreign loans are cheaper by at least 3 percentage points. For instance, Tata Steel recently raised 750 million of dollar equivalent loans for five-seven years at 5.6 per cent while a rupee loan would have cost nothing less than 9 per cent.