Infrastructure companies have given a lukewarm response to the government’s decision to raise overseas borrowing limits with many saying that unfriendly international capital markets would act as a major deterrent.
Under the new norms, announced on Monday, infrastructure companies can borrow up to $500 million from overseas markets for spending in the home country.
“The issue would be availability of willing lenders considering the global financial market crisis. Funding through external commercial borrowings (ECB), in my opinion, will continue to be challenging until financial markets recover their confidence,” R Shankar Raman, executive vice-president, Larsen & Toubro, said.
“We will look to utilise the window. But it is little late as it will only benefit the future projects,” said Ashok Chugh, chief financial officer, Patel Engineering.
“Also since the markets have turned sour, small companies will find dollar funding very tough,” he said Industry has been hemmed by a hard domestic interest rate regime after Reserve Bank of India (RBI) maintained raised key rates to suck out liquidity to tame a runaway inflation rate that has hovered above a worrisome 12 per cent in recent weeks.
Several infrastructure companies told Hindustan Times that it was easier to raise funds from international markets as rates are benchmarked to London inter-bank offer rate (Libor).
In the last two years, there has been a major rise in external commercial borrowings (ECB) largely because of growing gap between domestic and international interest rates.
At end-March 2008, outstanding ECBs at $ 62 billion ( up from the previous year’s $41 billion) accounted for the highest share in total external debt at 28 per cent.
“Given the continued weakness in rupee this was expected,” said Vikas Khemani, co-head, institutional equities, Edelweiss Capital.