Monday, September 28, 2009

THE LOW COST BORROWINGS OF INDIAN INDUSTRIES


The Indian Corporate are again on the spree of raising loans from overseas.
State-run lender Rural Electrification Corp (REC) is negotiating with USinsurer Aflac Inc for a $200 million yen-denominated loan as part of the company’s $500 million overseas borrowing plan.
Axis Bank is looking to raise $300 million through a bond offer that would be the first overseas issue in a year from an Indian commercial bank.
Few of the recent activities prove that they are really on a faster track of recovery picking up the manufacturing and consumption in equal proportions. Export is still lagging but still the journey have been strong.
The most interesting thing is the sudden appetite of raising loans from overseas rather than from Indian Banking. Indian companies are returning to the overseas debt markets as record low interest rates. Offshore loans are slowly returning after Indian companies raised just $2.8 billion this year through June. By comparison, they raised $15.4 billion in 2008 and $28.9 billion in 2007.

That reflects that Indian banks are charging more in comparison to the overseas rates. The easy liquidity is not available to Indian corporate from their own banking segment .Even after this if the RBI hikes its rates in coming months then the Growth opportunities of Indian Companies will be a slow and will force them to take more risk by raising overseas loan. So once again Indian companies might face the risk incase another Lehman Brother type case happens. The equity and the debt portion of the companies will be having high leverage and higher risk associated with the overseas Loans. So if next time we find a Lehman brother type collapse then these companies will have to face tough situation. But still we can all say that Indian companies are coming back and all we can expect that they will not get drowned away with another Global Financial collapse. Indian corporate are increasing their risk.





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