With the growth pro­spects back on track, India Inc is raising its borrowing limits

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(amount it can borrow from banks and other financial institutions), citing future growth prospects and expansion plans.

As per the disclosure made to the stock excha­nges, companies including Infrastructure Developme­nt Finance Company (IDF­C), Power Grid, Petronet LNG and Fortis are planning to increase the borrowing limits (See chart).

So, does this mean that these companies reflect go­od growth stories for investors to buy into? Financial Chronicle finds out from experts, who are divided. Some say it is a good sign, while others term it as “just a formality”.

IDFC has doubled its borrowing limit to Rs 80,000, in order to meet increased demand for infrastructure financing. It is also raising Rs 840 crore through issue of compulsorily convertible cumulative prefere­n­ce shar­es to private equity firm Ac­tis and an investment arm of Malaysian sovereign wealth fund Khazanah, as a part of a bigger fund-raising plan approved by its shareholders late last month.

IDFC said it plans to raise up to Rs 3,500 crore as long-term resources to meet its growth objectives and the capital adequacy norms prescribed by RBI. It has already raised Rs 2,654.18 crore through QIP.

“The recent IMF growth predictions for India indicate the growth prospects are strong. And to achieve such a growth rate, infra­structure development hol­ds the key and the increasing in borrowing limits can definitely be considered as a reflection of the India gro­wth story and promoters’ confidence in the busine­ss,” Dinesh Thakkar, chairman and managing director of Angel Broking said.

Petronet LNG has increased its borrowing limits to Rs 15,000 crore from Rs 10,000 crore, while Power Grid has increased the borrowing limit to Rs 80,000 crore from Rs 50,000 crore. Fortis, which is involved in a takeover battle for Singapore-based Parkway Holdings, has proposed to double its borrowing limits.

“Firms like IDFC, Power Grid and Petronet LNG reflect good growth stories. IDFC borrowing li­mits increase indicates infrastructure growth is going to be solid,” Anitha Gandhi, head of institutional sales at Arihant Capital, said. She said one sho­uld also look if the firms generate enough earnings to service the debts.

Thakkar ruled out the impact from the base rate and expected interest rates hike, saying there is ample liquidity in the system.

So far, debt to equity rat­io has been at comfortable levels for these firms, Fortis (0.28 times), Power Grid (1.77 times), Pertonet LNG (1.33 times). Understandably, IDFC had a high leverage ratio of 3.89 times, as it is in the business of lending.

Debt to equity ratio is an ideal way of seeing the resilience of a firm in “bad times” when interest rates rise and liquidity in the system dries up. This measure of a company’s financial leverage is calculated by dividing its total liabilities by stockholders’ equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Firms that use less debt to finance assets are underleveraged and may not find it difficult to raise loans when money becomes more expensive. Conversely, over-leveraged firms, or those wi­th higher debt to equity rat­io, will find it difficult to ra­ise debt in such times. However, some experts are cautious about such moves.

Gaurav Dua of , research head at Sharekhan said it is a routine process and this cannot be taken as a trend.

“It’s just a formality and not too much should be read into it. One should always look at the fundamentals, rather than cues like borrowing limits,” Jagannadham Thunuguntla, equity head of SMC Capital said.