N.S. Vageesh
Suresh Krishnamurthy

Chennai , Oct. 30

Indian companies are drawing a substantial amount of money from foreign lenders.

In the first five months of fiscal 2005,companies have borrowed $5.1 billion or the equivalent of Rs 23,000 crore from such lenders. Last fiscal, external borrowings of companies were about $3.5 billion. Interestingly, companies have also borrowed heavily from domestic banks in the first half of this fiscal - about Rs 1,30,233 crore.

The remarkable rise in foreign borrowings has come even as there was considerable uncertainty about the currency direction and interest rate movement. The momentum in borrowing spree has continued after the elections in May. Nearly $2.8 billion have come in since then. The single largest deal was struck by NTPC for $354 million in August.

It was however not merely the big and mighty that have borrowed abroad. Reserve Bank of India statistics indicate that borrowings for as small a sum as $10,000 too has been made. Are banks providing guarantees to enable smaller companies to borrow abroad? Senior bankers say it was unlikely. Their take - if banks came across such credit-worthy borrowers they would lend the money in dollars themselves.

Who is then lending? The break-up is not available in public domain. Banking sources say that it is mainly from foreign banks and multilateral institutions.

Why are companies borrowing with such ferocity? Mr Anil Singhvi, Executive Director, (Finance), Gujarat Ambuja Cements, says, "Companies are taking advantage of low rates. Capacity utilisation is now at a high in the manufacturing sector. Most balance sheets have large cash today, in anticipation of larger capacity expansion over the next 2 years."

So what kind of borrowings should companies go for? Domestic or foreign? Depends on your needs. Says Mr Rajat Dutta, General Manager - Planning & Corporate Communication, GE Shipping, "Ours is a global business, and hence borrowing globally is a natural choice especially when international offerings are attractive. GE Shipping has very limited debt exposure to the domestic markets."

When asked about the possibility of foreign interest rates going up and its impact on GE Shipping, Mr Dutta said the company has consistently being swapping a fair portion of its floating rate loans into fixed rate loans.

On the other hand, Mr Singhvi said both borrowing options were equally attractive. Domestic borrowing for a five-year tenor was available for triple A rated companies at around 6.5 per cent.

External commercial borrowings could be done at around 4.5 per cent to 5 per cent without covering the foreign exchange risk. The difference of about 1.5 per cent to 2 per cent is a call that you have to take on the currency movement, says Mr Singhvi.

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