The new window opened by the government for PSUs to raise external commercial borrowings (ECBs) for working capital needs is not likely to be used in a hurry. Top functionaries from a host of PSUs, expected to be at the forefront of the new ECB drive due to their relatively strong balance sheets, have indicated that they are not in a hurry to raise money abroad given the global market conditions and their own assessment of the need for (and cost of) foreign capital at this time.
Except IOC, none of the large PSUs FE spoke to said they were eyeing the ECB route for working capital. This implies that the target of an extra $4 billion capital inflows through this route, set by a government trying a variety of options to stem the rupee’s headlong fall, would turn out to be difficult.
KV Rao, executive director, corporate finance at HPCL, told FE the company would take the wait-and-watch approach. “Economic conditions are volatile and, therefore, we will not immediately look to borrow (from overseas). Also, with hedging costs at 8-8.5%, the total cost of overseas borrowings will not be all that attractive at around 10-11%,” he said.
In a similar vein, AK Banerjee, director (finance), ONGC, said the company was not immediately contemplating any working capital borrowings. However, he said, OVL, the overseas ventures arm of the state-run hydrocarbon explorer, might need to raise funds to fund its Mozambique acquisition. Overseas lenders could hike rates and hedging costs might go up further considering the prevailing economic conditions, making the arbitrage of overseas borrowing much lower, Banerjee believes. Nevertheless, he said, it might not be a bad time to borrow overseas if one looks at it from the currency perspective. “If the rupee appreciates from the current lows, the overseas borrower at this juncture might actually benefit,” he added.
Steel major SAIL, too, is not mulling any immediate fund-raising. Chairman CS Verma told FE: “We have Rs 25,000 crore as cash reservs.s At the moment, we will not raise any funds (domestically) and not go for ECBs either.”
Coal India, which is also sitting on cash reserves, doesn’t see the need for ECBs for working capital, but its chairman S Narsing Rao indicated the company might tap overseas funds for likely acquisitions of foreign coal mines. CIL hunting for overseas coal assets to meet the shortfall in domestic production. It is already evaluating three offers. It was in 1996 that CIL had last mobilised overseas capital and that was foreign currency loans from multilateral agencies like the World Bank, not ECB.
The country’s largest power generator NTPC, which raised $750 million through ECB last fiscal, is open to raising more such funds for project financing. “We will definitely look at raising ECB for project financing. But we do not borrow for working capital,” NTPC director-finance AK Singhal said.
IOC director-finance PK Goyal said the company will make use of the new ECB window to raise $500 million through a syndicated loan by the end of August, which will be used for working capital needs. He added that that as per the new rules, they can raise about $750 million for capital expenditure and $1 billion for working capital requirements. Depending on tenure and size, interest rates on ECBs vary widely. In July, it had raised 10-year dollar-denominated bonds of $500 million at interest rate of 3.224 percentage points over US Treasuries. Previously, the country’s largest oil marketing company could raise working capital loans from abroad with a tenure of 1 year and now, the tenure has been extended to three years.
A few days ago, the government re-estimated the current account deficit for FY14 at $70 billion – a figure many analysts feel is rather conservative – and announced a few steps aimed at additional dollar inflows of $11 billion. Quasi-sovereign bonds of $4 billion, additional ECBs of another $4 billion and spurring NRI inflows through attractive interest rates were among these measures. FE had reported that IIFCL and IRFC are looking at raising $2.5 billion between them through overseas bonds. It is also learnt that Power Finance Corporation has sought a special waiver for it to borrow from overseas even at an all-inclusive cost higher than that of domestic loans. So, while the bond route does seem pragmatic, the ECB window doesn’t as much.
(with inputs from Prashant Mukherjee)