ECB hike likely to benefit infra firms

The ECB limit for non-infrastructure companies, on the other hand, has been increased from $20 million to $50 million.

"Debt market has dried up in the country and is becoming expensive. Financial closure was becoming tougher for those projects that had lesser forex component and could not borrow from abroad due to restrictions. More liquidity can flow in,'' said Jai Mavani, executive director at KPMG.

The rising domestic interest rates have hurt the demand for automobiles and crimped the requirement for homes and other consumer products. Since January 2007, the central bank raised the cash reserve ratio nine times to 8.25 per cent to help the Finance Minister P Chidambaram curb inflation. State Bank of India's benchmark prime lending rate is 12.25 per cent, while the London Interbank offered rate (Libor) at which international lendings are bechmarked, hover around 7 per cent. This includes the bank margins and cost for foreign exchange cover.

Mavani believes that global interest regime is more competitive due to successive reduction in rates. The rates in India are higher. "Assuming that rupee remains stable and does not depreciate further, there is significant merit in cross-border debt at attractive rates,'' Mavani said.

According to estimates, the infrastructure sector requires $500 billion investment in five years, out of which $30 billion is expected to flow through the ECB route. Parvez Umrigar, managing director of Gammon India, said, "Infrastructure projects require long-term financing and ECB is one of the available alternatives. Our infrastructure company needs Rs 1,000 crore over the next one year and we will look at ECBs when the need arises."

Amitabh Mundhra, director, Simplex Infrastructure, said, "Fund raising for infrastructure projects was getting little difficult. Now, infrastructure companies can use the ECB funds to finance their projects. It will benefit the infrastructure companies at large".

But companies say the limit is too small compared to the cost of infrastructure projects. "The NHAI (National Highways Authority of India) projects entail an investment of Rs 4,000 crore and even international banks prefer larger exposure in lending. So an amount of Rs 400 crore is very small,'' said E Sudhir Reddy, chairman and managing director of the Hyderabad-based IVRCL Infrastructures and Projects.

IVRCL may opt for Rs 400 crore debt through ECB to part-fund its Rs 1600 crore order book. But Mavani differed. "If you get $100 million line of credit along with other fund sources, the companies can fund many infrastructure projects where the capital requirement is not very high,'' he said.

The shares of infrastructure companies shot up on Friday. IVRCL Infrastructure and Projects was up 2.88 per cent, Larsen & Toubro rose 3.19 per cent, Gammon Infrastructure strengthened 5.08 per cent, HCC went up 7.25 per cent and IRB Infrastructure Developers shot up by 5.35.

"The government's move will benefit the infrastructure companies and has contributed to the surge in prices,'' said Shailesh Kanani, a senior analyst with stock brokerage Angel Broking.