ECBs piling up as banks not willing to lend

MUMBAI: Over $2.5 billion worth of external commercial borrowings (ECBs), which have been sanctioned ‘in principle’ by foreign banks, are pending disbursement. Most of these banks are not keen to lend in the current circumstances.
To start with, several foreign banks active in the Indian market are set to breach their individual India exposure limits, which is a prime reason for companies finding it tough to raise overseas funds.
Secondly, the interest rates on foreign funds have climbed up in the recent past, forcing foreign banks to re-think the earlier terms agreed upon. As a result, the credit spread for Indian corporates, benchmarked against the London inter-bank offered rate (Libor), has widened, sources said.
In May, when the forward dollar premia hit rock-bottom levels, corporates made a beeline for funding by foreign banks at quite competitive rates —up to 250 basis points below the domestic rates.
‘‘But now foreign banks are not very keen to lend money for various reasons. First, the rates have started going up for a fully covered loan, with cross currency swaps ruling at 3.9 per cent for triple A-rated corporates. Secondly, all these foreign banks have a set India exposure, which they fear will be breached if they start processing all the in-principle approvals,’’ said a debt fund manager.
Sources said over Rs 500 crore worth of domestic debt has been bought back in the past few weeks. The companies that have raised foreign funds to retire domestic debt include Gujarat Ambuja, Grasim and Hindalco. ‘‘When forward dollar rate dipped to record low levels, even second-rung firms rushed to raise overseas money. Now these corporates will find it tough to close their deals as the pending ECB requests will also include this lot,’’ he added.
Triple-A-rated firms can at present raise hedged dollar funds at around 5.10 per cent (1.25 per cent Libor plus 3.9 per cent cross currency swap rate) which still works out to be cheaper than 5-year money in the domestic debt market.