Top Blue Chips Set To Milk New Ecb Norms

Top blue-chip companies are making the necessary preparations to take advantage of the external commercial borrowings (ECB) guidelines announced in April and raise $100 million in dollar debt for 10 years without any end-use restrictions.

The latest ECB policy has allowed corporates to raise 10-year debt from the international markets without any end-use restrictions except for investing in the stock and real estate markets. Corporates can use this for meeting rupee expenditure, for general and corporate restructuring purposes.

According to investment bankers, most AAA-rated corporates are examining the possibility of getting themselves rated by an international agency as the first step towards such transactions. Some companies have, however, already started this exercise. Telco has, according to bankers, sought a rating from Standard and Poor and while the rating exercise is completed, the rating has not been issued as yet.

 

Among the other corporates looking at this ECB window are Ranbaxy, Great Eastern Shipping, Tata Electric Companies, Steel Authority of India, Indian Oil Corporation and ONGC.

While Larsen and Toubro, IDBI and ICICI already have ratings from international agencies, the financial institutions are not expected to tap this market as the cost is likely to be too expensive to be on-lent.

The US bond market is definitely more expensive than the syndicated loans market but as the deepest debt market in the world, Indian companies with a need for long-term funds will do well to enter this market, said one investment banker.

The only Indian benchmark in the US bond markets is Reliance Industries. According to investment bankers, its 10-year issue is being currently traded between 165 and 180 basis points over the 10-year US Treasuries, whose rate is pegged at 6.75 per cent. This cost is in sharp contrast to the 7-year syndicated loans market where the average rate for top corporates is about 90 basis points over six-month Libor (6.01 per cent).

However, bankers say that for companies that need funds for long tenures, the US market is the only option and that the extra cost is the price of a debut in a new market.

However, investment bankers say that this market will be restricted to only those borrowers who are able to get the sovereign rating from the agencies. It will be very difficult for any firm which has a rating lower than the sovereign rating to raise funds from this market, said an investment banker.