Indian companies can bring in more dollars now

Saturday, 31 May 2008, 05:06 Hrs
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New Delhi: As the finance ministry has eased the ceilings on external commercial borrowings (ECBs) by companies, resource constrained infrastructure companies are now able to raise more low-cost funds abroad and repatriate them home for domestic spending.

The move will help the industry to offset the increased interest rates that touched six-year highs. The government also raised the ceilings on foreign investments into government and corporate bonds, in a bid to deepen the bond market and enhance the volumes in the debt market.

With the move, the maximum volume of ECBs that the infrastructure companies can raise abroad will go up from the existing $20 to $100 million for domestic expenditure in rupee. Other companies will be able to bring into India up to $50 million, up from $20 million. RBI approval, however, will still be required.

Companies, particularly in the infrastructure space, had made several representations to the government for easing the rupee spend as their primary expenditure takes place within the country and not outside. For example, the total debt requirement of the power sector alone is estimated at Rs 7,10,000 crore. The power ministry had earlier written to the finance ministry seeking easing of the ECB restrictions.

According to KPMG real estate head Jai Manavi, ?Many infrastructure companies were finding it difficult to raise funds in domestic market at a reasonable cost. This move will help them.?

In a bid to make borrowing easier, the finance ministry also raised the interest ceiling of overseas borrowings. Companies will now be at liberty to borrow at a higher interest rate, which throws open more borrowing options, explained an expert.

The move benefits smaller companies with weaker balance sheets to borrow at a higher rate. For a loan of average maturity period of three years to five years, the cost has been raised to sixmonth Libor plus 200 basis points and from six-month Libor plus 150 basis points. A basis point is 0.01 percentage point.

For overseas borrowings with an average maturity period of more than five years, the revised limit is six-month Libor plus 350 basis points, up from six- month Libor plus 250 basis points. The changes will come into force from the day RBI notifies them.
Source: IANS
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