Bloomberg News

India Eases Borrowing Rules, Allows Companies to Raise Yuan Debt

September 15, 2011

Sept. 16 (Bloomberg) -- India eased overseas borrowing rules and allowed companies to raise as much as $1 billion in yuan debt as higher local funding costs threaten to choke growth in Asia’s third-biggest economy.

The government yesterday decided to raise the cap on foreign borrowings without approvals by 50 percent to $750 million, and said it may permit the overall limit to exceed $30 billion “on a case-by-case” basis, R. Gopalan, secretary in the Department of Economic Affairs in the finance ministry, told reporters in New Delhi. Companies building airports, roads, ports and power plants will benefit from the new rules, he said.

Prime Minister Manmohan Singh aims to double spending on infrastructure to $1 trillion in the five years to March 2017 to accelerate growth to more than 10 percent and lift living standards in the nation. Eleven interest-rate increases by the Reserve Bank of India since March 2010 drove average five-year borrowing costs for top-rated local companies to an 18-month high of 9.78 percent on June 1.

“Including all hedging costs, there’s still an arbitrage of 1 to 2 percentage points,” said A. Issac George, chief financial officer at GVK Power & Infrastructure Ltd. “This will certainly help at a time domestic interest rates are threatening to hurt growth.”

Slowing Growth

Gross domestic product is likely to increase 8 percent in the year to March, according to central bank estimates, slower than 8.5 percent last year. Factory output grew 3.3 percent from a year earlier in July, the slowest pace in 21 months, according to data provided by the New Delhi-based Central Statistical Organisation.

The extra yield firms need to pay for five-year debt over similar-maturity government securities has risen to 93 basis points from as low as 56 on Dec. 6, according to data compiled by Bloomberg.

Indian companies sold more than $9 billion of non-rupee bonds to investors abroad in 2011, twice the amount in the same period last year, Bloomberg data show. They borrowed $14.6 billion of loans denominated in international currencies this year, a 17 percent decline.

The government also decided to allow companies to use 25 percent of the proceeds raised abroad to repay existing debt, Gopalan said. A $10 billion limit on foreign ownership of the nation’s sovereign debt remained unchanged, he said.

“The decisions taken are game changers as far as Indian companies are concerned,” Gopalan said.

Yuan Funds

Infrastructure Leasing & Financial Services Ltd., an Indian lender to road projects, plans to raise $100 million from yuan- denominated bonds and has hired bankers to manage the sale, a person with direct knowledge of the matter said Sept. 9, asking not to be identified as the matter is private.

Many companies sought yuan as one of the currencies for overseas debt, Gopalan said. Lanco Infratech Ltd., Adani Power Ltd., SRM Energy Ltd. and Moser Baer Projects Pvt. have said they’re talking to China’s export banks for loans, after billionaire Anil Ambani’s Reliance Power Ltd. borrowed $1.1 billion from China Development Bank Corp. in December.

Industrial & Commercial Bank of China Ltd., the world’s largest bank by market value, may provide services for Indian customers seeking to raise yuan funds from the sale of so-called dim-sum bonds, President Yang Kaisheng said in Mumbai yesterday.

“More multinational companies will feel comfortable tapping this market as the Chinese government continues to clarify its procedures for fund raising and remitting those proceeds into China,” Michael Lam, the Hong-Kong-based director of fixed-income capital markets for Asia at Deutsche Bank AG, said at a Euromoney conference in Singapore yesterday.

--With assistance from Jeanette Rodrigues in Mumbai, and Rajesh Kumar Singh, Kartikay Mehrotra and Kartik Goyal in New Delhi. Editors: Sam Nagarajan, Arijit Ghosh

To contact the reporters on this story: Anto Antony in New Delhi at aantony1@bloomberg.net; Anurag Joshi in Mumbai at ajoshi53@bloomberg.net

To contact the editor responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net; Shelley Smith at ssmith118@bloomberg.net


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