Companies queue up for dollar loans

IOC, Vedanta, Tata Power, PFC borrowing abroad as Libor falls to new low

India's top companies led by Indian Oil, Vedanta, Tata Power and Power Finance Corporation are raising loans abroad this month to take advantage of renewed investors' interest in the country.

While public sector Indian Oil is raising $650 million, Anil-Agarwal's Vedanta is marketing a $500 million loan among investors in the Gulf countries. Tata Power is also in the market to raise $200 million and has sought responses by July 11 from investors. Power Finance Corporation has hired bankers to raise $250 million in overseas loans in June.

"Whether it is in debt or equity, foreign investors are waiting to invest in Indian paper as they expect the economy to turn around in the coming quarters. India is back in favour as the Modi government is expected to expedite reforms," said a banker in Mumbai asking not to be named.

Bankers said with local interest rates hovering at 13-14 per cent, it made sense to raise funds from foreign markets. Reliance Industries has already raised more than 90 per cent of its debt in dollar-denominated loans. "With the Libor (London interbank offered rate) at a historic low, it is an opportunity to Indian companies to cut costs significantly," said Deep Mukherjee, senior director with India Ratings.

Data compiled by this newspaper show Indian companies have raised close to $4.6 billion since January against $8.5 billion in 2013 (see chart). Analysts said companies with export income were more aggressive in raising dollar loans as they had a natural hedge against currency swings.

All the four companies marketing loans have lined up projects in India and need funds. While the Vedanta-owned Cairn is expected to increase production from its Barmer oil block, Indian Oil needs money for the expansion of its Panipat and Koyali refineries. Tata Power is expanding its network in Mumbai to acquire more customers. Power Finance Corporation will use the proceeds to on-lend to its customers in India.

Interestingly, the Reserve Bank of India had in April barred companies from refinancing local loans at the foreign branches of Indian banks. The central bank had also restricted credit facilities Indian banks could extend to the foreign arms of local companies. Now, banks cannot lend to roll over a borrower's existing rupee loans.

The RBI notification effectively checks cases in which this mechanism is not used in the ordinary course of business, but to shift liabilities to the offshore arms of Indian banks or to convert rupee liabilities into non-fund based foreign currency liabilities. This has led to only companies with genuine projects in hand raising funds from abroad.