India Inc leans less on foreign debt as weak rupee makes servicing costlier

With the Indian unit having shed 10% to the dollar since January, companies raised $5 bn in March quarter of 2020, against $8.8 billion in the year-ago period

With the rupee having shed 10 per cent against the dollar since January this year, India Inc is staring at an extra repayment burden on its overseas loans. Fund raising from abroad fell to $5 billion in the first quarter of calendar 2020 from $8.8 billion raised by Indian companies in the same period of 2019, with companies taking steps to cut risk due to the Coronavirus pandemic.

On Monday, the Indian currency was trading at Rs 76.27 to the dollar. The RBI is expecting the rupee to hover at around Rs 75 as the pandemic forces foreign funds to withdraw from emerging markets. Analysts expect rupee to remain under pressure till the pandemic subsides and RBI takes steps to keep financial markets liquid and stable.

Analysts said while companies, which have taken forward cover will find it easy to repay their overseas debt but half of Indian companies which gave kept their positions open are in precarious financial position. According to data from Bloomberg, about $2.1 billion worth of dollar bonds are maturing till June.

“It depends on risk management strategy of every corporate. Several top companies have taken cover but it’s the medium and small sized companies which may face problems due to lack of cover,” said a Mumbai based analyst. Large corporates like Reliance, Tata, Ashok Leyland and Mahindras have taken adequate cover, he added.

CFOs said during the lockdown period, the cash flows of several Indian companies have dried up – making it difficult for them to repay loans. “There will be a lot of defaults as companies are not making any sales. There could be more asset sales to repay foreign loans,” said he.

While companies, which have foreign exchange earnings, will be able to tide over the crisis as they have natural hedge against a weakening rupee, the others may not be so lucky – especially in the real estate and NBFC sectors.

Another option for companies is to re-finance their foreign loans like Macrotech Developers (earlier known as Lodha Developers) re-financed in the March quarter. The moratorium announced by the RBI on loan repayments to local banks and a steep rate cut will also help companies to divert funds to repay foreign loans.