Availability of excess

liquidity domestically at lower rates has dampened the external commercial borrowings market.

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According to the data released by the Reserve Bank of India (RBI) on the external commercial borrowings (ECB) approvals for month of January, the amount of money to be raised has dropped to $1.3 billion from $1.56 billion in December.

Around 49 companies got approvals to raise debt overseas in the month of January. According to the January 2010 data released on Tuesday, there was not a single company that sought permission to raise funds through issue of foreign currency convertible bonds (FCCBs). According to investment bankers, the drop in the ECB approvals can be attributed to the ample liquidity that is available domestically. “Since money is locally very cheap and there is no credit offtake happening domestically, companies are not going for foreign currency debt,” Vikas Khemani, head (institutional equities) with Edelweiss Capital said.

According to him, the drop in approvals is a reflection of low credit demand, as many companies have already raised money via equity. Companies such as Indian Oil Corporation ($500 million), Adone Systems ($100 million), Bhushan Steel ($100 million), Adani Power ($99million) and Exim Bank ($300 million) topped the list of companies that reported their plans in January to borrow overseas.

The fall in overseas borrowing plans, some bankers said, can also be attributed to RBI’s decision to roll back the relaxation that was given to companies in 2008-09 after hell broke lose with the collapse of Lehman Brother in September 2008. In December 2009, RBI brought back the cap on the all in cost spread over Libor that companies can pay for the funds raised overseas.

For companies looking at borrowing funds for up to five years, the cap on spread over Libor was stipulated at 300 basis points and for funds above five years at 500 basis points.

“Many smaller companies have found it difficult to raise money within the all in cost cap and, hence, some of them could not raise money overseas,” a senior ICICI Securities official said.