RIL leads overseas loan surge as costs slump

Mumbai: Overseas syndicated loans by Indian companies surged in November to the highest level since March 2010 as borrowing costs slumped to a three-year low after the Federal Reserve delayed paring its unprecedented stimulus.

Billionaire Mukesh Ambani’s Reliance Industries Ltd. led corporates in raising $4.83 billion last month, according to data compiled by Bloomberg. The average premium paid over the London interbank offered rate on non-rupee borrowings was 259 basis points in the July-November period. That’s the lowest since second half of 2010 and compares with a 194 basis-point margin for Chinese companies, the data show.

 

State-owned ONGC Videsh Ltd. and Oil India Ltd. are among borrowers planning at least $3 billion of new loans amid speculation the Fed will cut its $85 billion of monthly bond purchase after unexpectedly keeping them unchanged in September. Companies are stepping up overseas funding after the rupee rebounded from a record low in August and Reserve Bank of India governor Raghuram Rajan increased the benchmark repurchase rate to curb the worst inflation among the largest emerging markets.

Some companies are borrowing preemptively in dollars, John Corrin, Hong Kong-based global head of loan syndications at ANZ Banking Group Ltd., the third-largest arranger for Indian companies last month, said in a 27 November interview. They may not need the money for a specific project right now, but if they see an opportunity they’ll take it because the timing and pricing is good.

 

Rupee margins

The indicative yield on AAA-rated five-year rupee bonds rose 30 basis points to 9.79% in November, data compiled by Bloomberg show, after the central bank raised its benchmark rate for a second time to 7.75% on 29 October. Average margins on loans denominated in the Indian currency rose to 430 basis points in the July-November period from 244 in the first six months of 2013, the data show.

Rupee-denominated syndicated loans were Rs1,500 crore ($240 million) last month, the least since February 2009, the data show.

Reliance, the Mumbai-based operator of the world’s biggest oil-refining complex, got $1.75 billion from 11 banks, company spokesman Tushar Pania said in a 6 November e-mail. The loan was denominated in the US currency, euros, yen and Singapore dollars, data compiled by Bloomberg show. A unit of billionaire Anil Agarwal’s Vedanta Resources Plc was the second-largest borrower in November with a $1.2 billion loan, the data show.

ONGC Videsh, the overseas unit of the nation’s biggest energy explorer, is seeking proposals to borrow $1 

billion for five years, a person familiar with the matter said 22 November. Oil India hired 10 banks to arrange a $1 billion facility for 12 months, according to another person.

 

Overseas debt has become more attractive after the rupee rebounded 10.2% from a record low of 68.8450 on 28 August, the world’s best performer in the period through last month. The currency, which fell 0.1% to 62.4487 per dollar on 29 November, has stabilized after Indian policy makers took advantage of a delay in the Fed’s stimulus taper to ease a cash crunch and implemented measures to curb India’s current-account deficit.

The rupee’s stability has shown renewed interest of some of the larger corporates to raise funds overseas, Sidharth Rath, Mumbai-based president for treasury at Axis Bank Ltd., said in a 20 November telephone interview. Companies see current levels favorable to borrow in dollars, he said.

The yield on the government’s benchmark 10-year rupee bonds has dropped 50 basis points, or 0.5 percentage point, from a five-year high of 9.24% reached 19 August amid a selloff in emerging-market assets in anticipation of the Fed’s stimulus reduction. The rate on the 8.83% notes due November 2023 rose two basis points to 8.74% on 29 November.

Fed speculation

The rupee fell 1.5% against the US dollar in November. The currency’s first monthly loss since August came as the central bank rolled back some support measures, and after Federal Reserve Bank of St. Louis President James Bullard said US jobs data could boost the chances of the Federal Open Market Committee tapering stimulus at its 17-18 December meeting. The rupee has weakened almost 12% this year.

Speculation on the commencement of Fed tapering has intensified, M. Narendra, chairman of Indian Overseas Bank, said in a 25 November telephone interview from Chennai. Eventually that will slow the credit flow, be it loans or bonds.

Essar Energy Plc, part of the Essar Group controlled by billionaire brothers Shashikant and Ravikant Ruia, said 25 November it has dollarised $870 

 million of rupee-denominated debt into low-cost loans in the US currency during the April- September 

period to reduce interest costs and improve cash flows and profitability.

Market ‘upheaval’

Borrowers are in a rush to raise funds abroad because if the Fed decides on tapering its bond-purchase program, there will be an upheaval in global markets, Prabal Banerjee, Essar Group’s Mumbai-based president for international finance, said in a 28 November telephone interview.

Janet Yellen, nominated to succeed Ben S. Bernanke as Fed chairman next month, signaled on 14 November she will carry on the central bank’s unprecedented stimulus until she sees improvement in an economy that’s operating well below potential. Bernanke said 20 November the monetary authority will probably hold down its target interest rate long after ending its monthly bond purchases.

Spreads have contracted because the Fed’s stance on the taper has assuaged market sentiment, which will sustain in the short-term, Juergen Maier, who helps manage about $1.1 billion in emerging-market assets at Raiffeisen Capital Management in Vienna, said in a 25 November telephone interview. Indian borrowers have capitalized well, and it won’t be unusual if loan volumes jump significantly in coming days and weeks. BLOOMBERG

 

pratima kumari

pgdm 1st sem