India Inc allowed to raise $473 million via ECBs

India Inc has got the Reserve Bank of India clearance to raise external commercial borrowings (ECBs) worth $ 473.21 million in the first two months of the calendar year.

Leading the pack is the Indian Hotels Company Ltd that raised $150 million of five-year maturity for import of capital goods.

Barring a few major corporates, most of the proposals range between $5 million and $30 million. Among the major ones are two ECBs of $66 million and $ 75 million of five years by Powerlinks Transmission Ltd. Both these have been raised in January, while Indian Hotels borrowings are for February.

While 24 companies received approvals under automatic route in January, February witnessed 15 companies. For February, the RBI has sought for clarifications for end-use requirement to seven out of the total 15 companies.

The purposes cited for use include general corporate purpose, modernisation, rupee expenditure, import of capital goods, repayment of rupee loan, purchase of sugar, loan sourcing of capital goods and working capital.

Of the total 39 proposals, 10 entail working capital as the purpose of borrowing but spanning a maturity beyond three years.

According to industry observers, pricing of ECBs in the current year is becoming an issue as seen from the spreads over Libor managed by various corporates in the recent past.

While last year IOC could raise 5-year loans for 68 basis points over Libor, NTPC this year raised funds for seven years for 210 basis points over Libor, they added.

According to them, the Indian papers are no more appetising for overseas subscribers as there has been oversupply of Indian papers in the market.

This has led to some companies dropping plans to raise ECBs, while others are opting for foreign currency convertible bonds (FCCBs).

This is because FCCBs "" unlike ECBs "" carry a fixed coupon and is cheaper as it has inbuilt equity conversion which gets exercised only if the subscriber chooses to do so.

Thus, the corporate also gets to expand its equity base without incurring additional issue of shares.