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Forex debt: India Inc faces a tough task as 64% of foreign loans unhedged

Some large companies have not taken cover on dollar loans, which can ruin their financial metrics

Dev Chatterjee  |  Mumbai 

Tata Motors' forex losses have raised a red flag on Indian firms
Tata Motors’ forex losses have raised a red flag on Indian firms

foreign exchange losses in the December quarter are a warning to Indian sitting on debts of Rs 8.1 lakh crore, of which 64 per cent is unhedged.

Analysts say any further depreciation in the rupee due to changes in the monetary policy will lead to rising losses for energy, metals and mining companies, which have the highest unhedged  

The rupee depreciated 2.7 per cent against the in 2016 and 9.9 per cent since 2013. Many Indian now have large foreign operations with in various currencies.

“Some large have not taken cover on their loans, which can ruin their financial metrics,” said a chief financial officer. “Most of these are in oil and gas and power.”

As profitability is expected to remain subdued in 2017, any fluctuation in the dollar-rupee rate will mean pay more for the same loan, according to analysts.

In a recent study of the top 100 borrowers, India Ratings found a staggering 81 per cent had not taken cover on their foreign Indian have 38 per cent of their in foreign currency. 

A forward cover, which costs extra, is used for foreign to insure against foreign exchange fluctuations. 

graph
“This is like a ticking time bomb,” said an analyst. “If the rupee falls further, some of the top will have to shell out a substantial amount. Energy are in trouble, as 48 per cent of foreign are with them,” he added.

An uptick in crude oil prices, coupled with a depreciating rupee, will be a double whammy for energy companies, which have merely 12.6 per cent and 43 per cent, respectively, of and trade exposure hedged. Metal and mining had hedged 62 per cent of their and 26 per cent of trade, India Ratings said.


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Forex debt: India Inc faces a tough task as 64% of foreign loans unhedged

Some large companies have not taken cover on dollar loans, which can ruin their financial metrics

Some large companies have not taken cover on their dollar loans, which can ruin their financial metrics
foreign exchange losses in the December quarter are a warning to Indian sitting on debts of Rs 8.1 lakh crore, of which 64 per cent is unhedged.

Analysts say any further depreciation in the rupee due to changes in the monetary policy will lead to rising losses for energy, metals and mining companies, which have the highest unhedged  

The rupee depreciated 2.7 per cent against the in 2016 and 9.9 per cent since 2013. Many Indian now have large foreign operations with in various currencies.

“Some large have not taken cover on their loans, which can ruin their financial metrics,” said a chief financial officer. “Most of these are in oil and gas and power.”

As profitability is expected to remain subdued in 2017, any fluctuation in the dollar-rupee rate will mean pay more for the same loan, according to analysts.

In a recent study of the top 100 borrowers, India Ratings found a staggering 81 per cent had not taken cover on their foreign Indian have 38 per cent of their in foreign currency. 

A forward cover, which costs extra, is used for foreign to insure against foreign exchange fluctuations. 

graph
“This is like a ticking time bomb,” said an analyst. “If the rupee falls further, some of the top will have to shell out a substantial amount. Energy are in trouble, as 48 per cent of foreign are with them,” he added.

An uptick in crude oil prices, coupled with a depreciating rupee, will be a double whammy for energy companies, which have merely 12.6 per cent and 43 per cent, respectively, of and trade exposure hedged. Metal and mining had hedged 62 per cent of their and 26 per cent of trade, India Ratings said.


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Business Standard
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Forex debt: India Inc faces a tough task as 64% of foreign loans unhedged

Some large companies have not taken cover on dollar loans, which can ruin their financial metrics

foreign exchange losses in the December quarter are a warning to Indian sitting on debts of Rs 8.1 lakh crore, of which 64 per cent is unhedged.

Analysts say any further depreciation in the rupee due to changes in the monetary policy will lead to rising losses for energy, metals and mining companies, which have the highest unhedged  

The rupee depreciated 2.7 per cent against the in 2016 and 9.9 per cent since 2013. Many Indian now have large foreign operations with in various currencies.

“Some large have not taken cover on their loans, which can ruin their financial metrics,” said a chief financial officer. “Most of these are in oil and gas and power.”

As profitability is expected to remain subdued in 2017, any fluctuation in the dollar-rupee rate will mean pay more for the same loan, according to analysts.

In a recent study of the top 100 borrowers, India Ratings found a staggering 81 per cent had not taken cover on their foreign Indian have 38 per cent of their in foreign currency. 

A forward cover, which costs extra, is used for foreign to insure against foreign exchange fluctuations. 

graph
“This is like a ticking time bomb,” said an analyst. “If the rupee falls further, some of the top will have to shell out a substantial amount. Energy are in trouble, as 48 per cent of foreign are with them,” he added.

An uptick in crude oil prices, coupled with a depreciating rupee, will be a double whammy for energy companies, which have merely 12.6 per cent and 43 per cent, respectively, of and trade exposure hedged. Metal and mining had hedged 62 per cent of their and 26 per cent of trade, India Ratings said.


image
Business Standard
177 22