ECBs surge 40%, but pace seen slowing from here on

External commercial borrowings (ECBs) grew by 40% to almost $35 billion last fiscal, the highest in the last five years, according to data released by the Reserve Bank of India (RBI).

The total money raised in the year stood at $34.89 billion, most since fiscal 2007.

That compares with $24.49 billion in the last financial year.

“There was sizeable liquidity infusion into the global markets during the last fiscal. That led to some improvement in risk sentiment and helped Indian companies raise funds. We expect ECBs to be mostly stable going ahead as well, barring major volatility in the rupee,” said Siddarth Sanyal, chief economist-India, Barclays Capital.

But demand may not sustain through the year, said J Moses Harding, head of asset-liability committee and economy & market research at IndusInd Bank.

“A large chunk of the last fiscal’s borrowing happened in the first half because the rupee was strong and outlook healthy. However, due to volatility in the second half, corporates were forced to bear a higher hedging cost, which makes international borrowing at par with domestic,” Harding said.

Five-year, AAA-rated debt gets sold at 9.40%-9.50% in India currently. On the other hand, international funding is available currently at between Libor + 300-400 basis points (bps).

The 6-month Libor rate currently is 0.73%. Hedging costs (to protect the loanee from exchange rate fluctuations) add about 5.5%, making the total pricing a tad cheaper.

“The differential in domestic and international funding rates has narrowed a lot compared with the earlier part of the last financial year where funds were available at Libor + 200-300 bps,” says Ajay Manglunia, senior vice president, Edelweiss Securities.

The RBI’s decision to cut its repo rate by 50 bps last month led to talk of southern drift in the rates.

Not so fast, said Vinod Wadhwani, director, Ambit Corporate Finance.

“If you look at the RBI’s guidance, the next 6-12 months are unlikely to change the domestic interest scenario much. Moreover, international money is still cheaper. Therefore, well-rated institutions will continue to receive funding from the global markets,” he said.

In September last, the RBI raised the limit for eligible borrowers to avail of ECBs under the automatic route per financial year.

The central bank enhanced this limit for corporates in real sector, industrial sector and infrastructure sector to $750 million or equivalent against an earlier limit of $500 million.