There seems to be no end to the flow of dollars into India and the burgeoning of India's foreign exchange reserves. But this has hardly any bearing on the external commercial borrowings market for Indian companies.
Banks have not been able to sell most of the paper of Indian companies because there are hardly any takers for such paper in the world market.
"Banks in the Middle East and even in the Far East are not buying Indian paper at all. Both these regions are the traditional markets for Indian paper. European banks generally are not excited by Indian paper. The banks are resisting the price level. As a result, the lead arrangers for the Indian paper, in most cases, are now saddled with this paper," said a senior banker.
The list of ECBs which successfully sailed through during the current financial year, because they were fully underwritten, includes those of Bharti Cellular, Reliance and the Industrial Development Bank of India.
But in most cases, the banks that were the lead arrangers have taken the paper on their books and are not finding it easy to sell it.
Bharti Cellular had raised a $120 million five-year paper. The lead arrangers were ABN Amro, Standard Chartered, DBS, besides a few others.
The IDBI issue was arranged by Citi and the Reliance paper by Citi, ABN Amro, Standard Chartered and a clutch of banks.
Bank of Baroda raised a two-year facility for Indian Oil Corporation, and the State Bank of India recently closed a $100 million deal for Power Finance Corporation.
SBI has structured the Power Finance deal in a unique way, offering to buy back the paper from other banks after two years, thereby giving them an exit route.
The primary reason for this is India's rating. In September, Standard & Poor's lowered India's rupee debt rating to junk status, citing the country's increasing debt burden and vulnerable public finances.
Even though Moody's Investor Service, in November, placed India's foreign currency country ceiling for debt on review for a possible upgrade, it had no impact on the global perception of Indian paper.
"Indian paper cannot take advantage of the low-interest scenario unless we are willing to raise the coupon. A five-year paper needs to have a coupon of around 100 basis points over the London inter-bank offered rate (Libor). Nobody is willing to pick up Indian paper at 80 basis points above Libor. Lead arrangers who sold issues at a fine price are finding themselves saddled with paper nobody is willing to buy," said a merchant banker.
"Finding it difficult to raise money through the ECB route, companies are rushing to raise foreign currency non-resident (bank) loans from banks. These loans are raised for six months and then rolled over to take care of long-term requirements. Most banks have already exhausted their foreign currency kitty because of the rush," said a bank chairman.
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