Green shoots

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Rupee loans of India Inc double in November, showing first signs of revival in industrial capex

Rupee loans more than doubled in November, paring a second-half slump, as the Reserve Bank of India (RBI) pumped funds into the financial system to support the government’s efforts to revive Asia’s third-largest economy. Syndicated borrowings jumped 122 per cent to Rs 13,100 crore ($2.4 billion) from October, led by Bajaj Hindusthan, whose power unit raised Rs 8,636 crore for 14 years, according to data compiled by Bloomberg. Lending since June 30 totalled Rs 75,900 crore, 37 per cent less than a year earlier and headed for a four-year low, while foreign currency credit plunged 62 per cent to $5.8 billion. The government has cut taxes on companies’ overseas debt and opened more industries to foreign investment in the past three months to bolster infrastructure spending and growth.

Cash infusions by RBI governor Duvvuri Subbarao have pushed three-month money-market rates to a two-year low, aiding the government’s plan to bolster investment to 38 per cent of gross domestic product from about 30 per cent at present.

“We are seeing some green shoots in local-currency borrowing and certain policy changes have spurred that,” Abhijit Shrivastava, a Mumbai-based director of institutional loan sales at Deutsche Bank, said in an interview. “The government is encouraging infrastructure projects and my sense is that in the next six months to a year, we’ll see more rupee borrowing by companies.”

The government is seeking $1 trillion of investments in highways, ports and power plants from 2012 to 2017 to spur development in India, where the World Bank says more than two-thirds of people live on less than $2 a day. The government plans to set up a panel led by the prime minister to speed up approvals for road, rail and port construction, including as much as $18 billion of stalled projects, two officials with knowledge of the proposal said.

Bajaj Hindusthan, a sugar mill operator, was last month’s second-largest borrower in the Asia-Pacific region, excluding Japan. It signed a loan equivalent to $1.6 billion for its Lalitpur power generation, which is developing a thermal project in Uttar Pradesh, at 13.75 per cent. That’s 400 basis points more than the base rate of State Bank of India, India’s largest lender, data compiled by Bloomberg show. Bajaj Hindusthan’s chief financial officer Manoj S Maheshwari couldn’t be reached to comment on the company’s loan after two calls to his office and mobile phone.

Jubilant Bhartia, a unit of Jubilant Bhartia Group, which has interests from oil and gas exploration to retail and healthcare, agreed to pay 450 basis points, or 4.5 percentage points, more than the state-controlled lender’s benchmark rate when it signed a 12-year, Rs 1,340 crore facility in September, the data show. Mumbai-based SBI lowered its base rate to 9.75 per cent from 10 per cent with effect from September 20.

The three-month borrowing rate between lenders in India has slid 1.11 percentage points this year to 8.73 per cent, data from the National Stock Exchange of India show, as the RBI’s measures to free up cash fuelled pickup in money-supply growth from a seven-year low. The measure touched a two-year low of 8.62 per cent on November 7. Annual growth in bank lending quickened to 16.9 per cent in November from 15.7 per cent at the end of September, central bank data show.

The central bank has unlocked more than Rs 2.7 lakh crore in 2012 by reducing lenders’ reserve requirements and purchasing government bonds. RBI bought Rs 11,643 crore of debt due in 2020, 2022 and 2027 at an open-market auction on December 4. The monetary authority has reduced the proportion of deposits banks must set aside as reserve by 1.75 percentage points this year to 4.25 per cent.

“Banks have ample cash, which they can invest in higher-yielding corporate loans and debt,” J Moses Harding, the Mumbai-based head of asset-liability management and economic research at IndusInd Bank, said in an interview. “But appetite for corporate loans will depend on the pickup in economic reforms and growth.”

Prime minister Manmohan Singh ended a two-year policy gridlock in September by throwing open the retail and aviation sectors to more foreign investment, announcing plans for a comprehensive review of energy policy and raising diesel prices to help reduce the budget deficit.

JSW Steel, India’s third-largest producer of the alloy, is embarking on a Rs 6,500 crore expansion at one of its units to boost capacity at a factory near Mumbai by 67 per cent. ReGen Powertech, the nation’s third-largest supplier of wind turbines, plans to invest Rs 185 crore to start producing turbine blades at a plant in Udaipur, Rajasthan.

Companies are also seeking funds to refinance costlier borrowings after the RBI’s fund additions helped lower funding costs. The benchmark five-year bond yield for Indian companies rated AAA by Crisil has slid to 9.09 per cent from this year’s high of 9.72 per cent in July, data compiled by Bloomberg show. A similar gauge in China climbed 73 basis points to 4.93 per cent.

Jaiprakash Associates, which provides engineering and construction services, borrowed Rs 1,200 crore for eight years from ICICI Bank and Indian Bank to replace existing debt, data compiled by Bloomberg show. “There’s an optimism among companies and sentiment seems to be improving,” Harihar Krishnamoorthy, the Mumbai-based treasurer of FirstRand’s India unit, said. “Economic reforms are taking place and companies are also borrowing to refinance older debt.”

The yield on India’s 10-year sovereign notes has dropped 40 basis points this year to 8.17 per cent, data compiled by Bloomberg show, heading for the first annual decline since 2008.

The rupee gained 0.8 per cent to 54.1375 per dollar in Mumbai on Thursday after the Lower House of Parliament endorsed a decision to let foreign retailers set up local stores. Rupee-denominated debt has returned 9.6 per cent this year, the best performance after Indonesia among Asia’s biggest local-currency fixed-income markets, HSBC Holdings data show.

Credit risk for State Bank of India, considered a proxy for the sovereign, touched a 16-month low of 235 basis points on December 5. The cost of insuring the Mumbai-based lender’s debt for five years against non-payment using credit-default swaps fell 160 basis points this year, according to data provider CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should the borrower fail to adhere to its debt agreements.

“Loan growth in India is high at about 15 per cent a year,” Vineet Gupta, a Singapore-based senior analyst at Moody’s Investors Service, wrote in a December 4 report. “One anchor of stability for Indian banks is their strong business franchises, which support their low-cost funding profiles, helping maintain sizable lending margins,” he wrote.


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