Can India Inc refinance $16-bn forex debt maturing in March?

High interest costs and a weak rupee may raise overall debt, even as refinancing may not be an issue

The rupee goes into a tailspin whenever there is any talk of dollar outflow. One of the factors weighing on the currency is the foreign debt of Indian companies that is set to mature in March 2014. According to rating firm Moody's, 14 Indian companies will see $32.8 billion in debt maturing by the end of the financial year, half of which is denominated in foreign currency. Oil and gas companies, both state-owned and private, account for 60 per cent of the maturing debt, while state-owned enterprises account for about 48 per cent of the total debt. Among private sector companies, Tata Group accounts for 23 per cent of this debt, while Reliance Industries and Vedanta account for another 28 per cent. Given that the rupee has weakened by 15 per cent since March and interest rates have inched up in the US, refinancing this foreign currency debt will be more expensive for Indian companies.

Moody's does not expect any of these companies to face a problem in refinancing the debt, but "if the companies' total reported debt increases, owing to foreign exchange moves, their financial covenant cushion will likely decline, particularly, with respect to interest coverage and debt service coverage ratios, as the rating agency expects their interest costs to increase as well". Companies such as Reliance Industries, NTPC, Oil and Natural Gas Corporation (ONGC) and Tata Consultancy Services, which have more cash than debt maturities, will not face any difficulty refinancing this debt. Clearly, ONGC (with a rating of Baa1 stable), Reliance Industries (Baa2 positive), Bharat Petroleum Corporation (Baa3 stable) and Indian Oil Corporation (Baa3 stable) are unlikely to face any refinancing issue. These companies have more than $13.4 billion (Rs 90,000 crore) in debt denominated in foreign currency. These companies would continue to have access to funding - both domestic and international funding - due to their size and state-owned status.

Companies likely to see interest costs rise are those which already have a high forex debt. The cost of credit may rise substantially for these companies. Companies such as Indian Oil, Tata Steel and Tata Power have reported debt/Ebitda of 4x-5x over for the financial year ended March 2013. Weak demand and industry constraints will further put pressure on their cashflows and, as a result, their refinance cost would be higher than current levels.