After Moody's upgrade, India Inc can raise funds overseas at lower costs

CFOs of large corporates said Moody's upgrade will help tap overseas markets where average cost of funds is Libor plus up to 200-400 basis points

The Indian corporate sector is celebrating the Moody's upgrade as it would reduce their cost of funds on an average by up to 100 basis points while raising funds abroad. The Moody's upgrade comes at a time when in the calendar year 2017, Indian corporates' borrowings declined by 40 per cent from overseas markets as many companies struggled to manage their high debt and low capacity.

CFOs of large corporates said the Moody's upgrade will help them tap overseas markets where the average cost of funds, as of now, is Libor plus up to 200-400 basis points depending on a company's credit-worthiness. "We can straightway raise funds at 75 to 100 basis points lower than earlier rates. This is a good news for Indian companies that have projects in the pipeline or want to refinance old loans," said Prabal Banerjee, president (finance) of the Bajaj Group.

Companies like Reliance, which usually get far better rates than rest of Corporate India at the rate of Libor plus 100 basis points, will be able to raise funds at Libor plus 25 basis points due to their better credit rating. Hindustan Petroleum Corporation Ltd (HPCL), which is planning $10 billion of investments in the next five years, will see its cost of funds coming down by at least 30-40 basis points, said an HPCL official. On Friday, Moody's also upgraded the ratings of HPCL, Bharat Petroleum Corporation Ltd, Indian Oil, and Petronet LNG. 

Since 2014, bankers said India is witnessing a declining trend in the volume and number of foreign currency loans. In 2017, the number of deals was down at 41, a drop of 37 per cent, as compared to 2016 that saw 65 deals. However, this might change in 2018. "The ratings upgrade underlines the efficacy of the bold structural reforms undertaken by the government in recent years. It clearly shows that the economy is turning the corner and poised for a big leap forward, highlighting the immense potential that India offers as a global investment destination," said Sunil Mittal, chairman of Bharti Airtel.

On November 1, soon after the World Bank improved India's position in ease of doing business, top Indian CEOs told Business Standard that the situation on the ground has improved considerably in the past few years and a successful roll out of the Goods and Services Tax (GST) will help to improve the country's rankings in the coming years from its current position.

In a dipstick survey, carried out early this month, of CEOs across the nation, almost 80 per cent of the respondents were of the view that due to the series of reforms taken by the Modi government, it has become easier to do business in the country.

This mood was well-captured by Moody's, which said on Friday that the GST would promote productivity by removing barriers to interstate trade. The improvement in the monetary policy framework would address the overhang of non-performing loans (NPLs) in the banking system. Further, measures such as demonetisation, the Aadhaar system of biometric accounts, and targeted delivery of benefits through the Direct Benefit Transfer (DBT) system are intended to reduce informality in the economy.

In the survey, the CEOs had specifically cited the GST, which removed borders among states and hindrances like Octroi in Maharashtra. With GST's rollout, many companies like Hindalco are reducing their warehouses by half, which would ultimately result in lower costs and increased profitability.