India Inc's overseas loan mop-up declines 46%

The global financial meltdown has hit the overseas borrowing plans of Indian companies. The amount of loans raised overseas in January-September 2008 dipped by 46 per cent to $13 billion from $24 billion in the same period last year, according to a Bank of America (BankAm) report.

Asia is not immune to the crisis that has gripped the financial industry. Loan volumes have been steadily declining since the beginning of the year. The few deals are happening and their average size is small, the report said.

If this was not enough, some more bad news may be in store. BankAm said the fourth quarter ending December 2008 may be worse. The loan market continues to weaken as priority shifts to preserving capital.

 

India is not very different from others. Hence, the effects of the crisis will be seen on Indian companies too, indicating tough times ahead for fund-raising efforts, according to Asit Bhatia, managing director, Global Corporate and Investment Banking Group.

The Indian market mirrors Asian trends. There is balance-sheet pressure on leading banks. Also, there is intense focus on counter-party credit quality. The risk spreads are now 5-8 times higher than the levels seen in 2007 across a wide range of borrowers and tenures.

There is a trend towards benchmarking loan spreads against comparable credit-default swaps and secondary loan trading levels. The market is also witnessing tighter structures and shorter tenures.

Indian companies have seen strong growth trajectory in the past four years with average annual growth of 25 per cent in sales and over 50 per cent in profits, though a slowdown is expected in 2008-09.

While traditional offshore instruments, including syndicated loans and private equity, helping to raise funds, new instruments like foreign currency convertible bonds, qualified institutional placements and leveraged finance will also play a crucial role. Before the financial crisis gripped the global markets, Indian companies raised resources in the global market in a big way.

Elaborating on the factors that drove offshore financing, BankAm said first, there was dramatic growth in investment activity – both domestic and cross-border. Second, the government also went ahead with an agenda of liberalisation. Third, the lower interest rates on foreign borrowings and, fourth, investment-grade ratings for India and Indian companies helped to raise funds.