ECBs flare up as rupee gains ground

MUMBAI: Companies are making a beeline to the international bond markets as rupee continues to beat down the dollar. In the first two months of the current financial year, over $1.5 billion worth of external commercial borrowings (ECBs) have already been tied up, according to market estimates. Recently, money markets were rife with rumours that RBI is expected to announce a temporary ceiling of $3 billion to curtail the mad rush for external funding.Several corporates, including small corporates, lined up ECB requests before merchant bankers fearing imposition of a ceiling, said sources. As a result, sources said that over Rs 500 crore worth domestic floats have been deferred for now to explore opportunities in overseas markets and the companies include some of the Tata Group companies, Reliance Infocomm, IRFC and few other blue-chip companies. On the bond markets, this news had a drastic impact on corporate yields where the spreads between the government and Triple-A rated corporate securities narrowed substantially to less than 30-40 basis points from over 100 basis points a month back. "Several companies are tapping ECB route considering the recent crash in forward premium and companies are increasingly using external funds for both short-term and long-term financing. On Wednesday, there was a sustained rally on corporate bonds in anticipation of tightened liquidity since there will be a dearth of fresh issues in the near term. Companies have started making queries for longer term international money which will impact the domestic liquidity," said Rajiv Anand of Standard Chartered Mutual. Forward premiums have fallen to their lowest level in nearly 10 years and with the 12-month Libor hovering around 1.20 per cent, borrowing costs will be significantly lower than domestic issues, said sources. Meanwhile, there has been a fresh interest from FIIs to park their monies in Indian short-term debt market cashing in on the arbitrage opportunities available here. Sources said that on May 19, a block deal of Rs 450 crore worth of August treasury bills were purchased by an FII. In the past 10 days, FIIs have bought in over Rs 1000 crore T-bills. "Companies can easily get a clean spread of 2 per cent if they go for external financing even after hedging their dollar exposures. Interestingly, several AA-rated corporates also are lining up external funding options unlike in the past where only blue-chip companies got foreign loans at competitive rates," said a fund manager. Companies are also raising foreign currency loans within the $100m ceiling on automatic approval for external commercial route since anything above will have to get clearance from the finance ministry," said a fund manager.