Forex debt syndication deals fall as euro zone crisis lingers

Debt syndication for raising foreign loans by domestic companies or financial institutions have been witnessing a drop since the recent past, as foreign banks reduce their exposure to emerging markets on the back of the ongoing euro-zone debt crisis.

Also, a depreciating rupee is acting as a further dampener to raise foreign currency loans through the external commercial borrowing (ECB) route by the domestic entities.

"Certainly, some foreign banks are not participating strongly in the debt syndication market, as they were in the past. The availability of syndication has shrunk a little bit," HSBC India Chief Executive Stuart A Davis told PTI here.

He also said that due to shrinkage of syndication opportunities, price has been impacted in the recent past.

In a debt syndication process, there is a consortium of banks or financial institutions or entities that extend loans to a particular firm, with a lead-bank or financial institution taking the highest exposure.

Recently, domestic financial institutions have seen a drop in debt syndication opportunities as cash-starved banks in advanced economies are reluctant to take exposure to emerging economies, due to ongoing economic uncertainty in their home markets.

Even infrastructure finance companies have been facing cost increase in raising foreign currency loans since the recent past due to risk aversion of foreign banks.

"Raising funds through syndicated loans has turned costlier, as most foreign banks have frozen or reduced their lending abroad, due to the euro zone crisis," Infrastructure Development Finance Corporation (IDFC) Senior Director for resources S J Balesh said.

He also said, slowdown in such deals is visible as major infra financing companies like IDFC, Power Finance Corporation (PFC) and Rural Electricity Corporation (REC) have not closed any deal in the recent past.

Industry experts also say a depreciating rupee is also not supportive of the syndication deals as of now.

"Though there is a strong demand for ECBs due to interest rate differentials, a depreciating rupee is not helping forex loan raising process as of now, which in turn, impacts the debt syndication deals," a top bank official of a foreign bank said.

He, however said, things are expected to improve once the euro zone crisis is resolved.