Rupee fall may inflate India Inc’s foreign loan bill by $2 billion

Corporates have been increasingly tapping overseas loans—mostly in the US currency—to save costs arising out of higher interest rates and liquidity constraints in the domestic market in the recent months, but the falling value of rupee seems to have negated the benefits

New Delhi: The falling value of rupee may impact hard the profitability of the Indian companies, which have tapped overseas loans, and their bottomlines are likely to take a hit of over $two billion this year, reports PTI.

Corporates have been increasingly tapping overseas loans—mostly in the US currency—to save costs arising out of higher interest rates and liquidity constraints in the domestic market in the recent months, but the falling value of rupee seems to have negated the benefits, experts believe.

The rupee has depreciated by over 12% to close to 50-per-dollar mark currently from its near 44-level against the US currency at the beginning of August.

It was the worst performer among major Asian currencies with a decline of 5% in the past week alone and this downtrend has added to the woes of the companies having gone abroad for their borrowing needs.

Indian companies have borrowed close to $21 billion in foreign currencies through ECB (External Commercial Borrowing) window between January and July this year, as against a total amount of $18 billion in entire 2010.

The entities having raised such overseas loans this year include Reliance Industries, NTPC, Mundra Port and SEZ, Indian Oil, Bharat Aluminium, Vodafone Essar, Air India, GAIL, Adani Power, JSW Steel, Aircel, Tata Tele, Idea Cellular, Suzlon, IDFC, RCom, REC, Indian Railway Finance Corp, M&M and BPCL, as per data available with the Reserve Bank of India (RBI).

In July itself, as many as 100 companies tapped overseas loans totalling over $4 billion. This included Mukesh Ambani-led RIL raising $1.09 billion for refinancing its old loans, Mundra Port ($150 million for ports business) and Indian Oil ($500 million for import of capital goods).

Besides, a number of telecom companies have raised overseas loans in recent months to refinance earlier rupee loans for payment of their third generation (3G) spectrum fees.

The analysts said that liquidity deficit and relatively higher interest rates in domestic market were prompting the Indian companies to tap cheaper dollar loans for funding their domestic business activities, imports, overseas acquisitions and refinancing of existing rupee loans.

However, the situation has turned around with sharp rupee depreciation in past few weeks from a relatively stable trend in earlier months of the year, because of which many of the companies did not even hedge against the currency fluctuation risks, analysts said.

As a result, many of the companies might have to book mark-to-market losses on their books for this year unless the rupee reverses its downward trend, experts said, while adding that the current level of rupee depreciation pegs the estimated hit on their profits at over $2 billion.

Experts are of the opinion that those corporates which did not hedge their forex exposure, will have to bear the brunt of the current volatility in the Indian currency in the form of large forex-related liabilities.

“Most of the corporates, especially the PSU players, had kept their forex exposure unhedged and had expected the rupee to remain stable. But now most of them would see their liabilities shooting up significantly and many of them would be forced to mark-to-market losses on their income statement in the current year,” SMC Global Securities strategist & head of research Jagannadham Thunuguntla said.

Religare Capital Markets’ director and strategist (institutional research) Tirthankar Patnaik said, “A depreciating rupee would mean a hit on the equity of the borrower on account of increased foreign currency liability (part that is not hedged) and higher interest rate payments.”

He said that some companies have a policy of passing this increase liability to equity through profit and loss account (for payment of interest to be done in foreign currencies) which would mean a “hit on the profitability this year”.

“The increasing interest rates globally would only add to the injury,” Mr Thunuguntla said, while adding that 12%-14% depreciation in the rupee would inflate their existing overseas borrowing exposure by about $2 billion.

Ashika Stock Broking Research head (equities) Paras Bothra also said that the rupee depreciation would be negative for the Indian companies with regards to their overseas loan, raised specifically in the US dollar.

Mr Bothra pegged the impact at 5%-10% of the companies’ overseas loans, depending on the exchange rate at the time of their borrowings.

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Indian bourses beat global leaders with CEO pay hike

NSE’s Ravi Narain was the top-paid CEO, with gross remuneration of about Rs7.35 crore for the year 2010-11, followed by BSE MD and CEO Madhu Kannan (Rs2.04 crore) and MCX-SX chief Joseph Massey (Rs1.80 crore)

New Delhi: Indian stock exchanges may not rank high on international charts in terms of the volume of business done, but they have beaten global market leaders in terms of pay hikes given to their top executives, reports PTI.

The two largest stock exchanges of the world—the NYSE Euronext and Nasdaq OMX Group—cut down the remuneration paid to their respective chief executive officers (CEOs) last year.

At the same time, the annual remunerations paid by Indian bourses, including market leaders National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) as well new entrant Multi Commodity Exchange Stock Exchange (MCX-SX), rose during the financial year ended 31 March 2011.

NSE’s Ravi Narain was the top-paid CEO, with gross remuneration of about Rs7.35 crore for the year 2010-11, followed by BSE MD and CEO Madhu Kannan (Rs2.04 crore) and MCX-SX chief Joseph Massey (Rs1.80 crore).

NSE CEO Ravi Narain was paid a net remuneration of Rs3.85 crore, but the BSE and MCX-SX did not specify whether the remuneration figure for their chiefs was a gross or net amount.

The remuneration figures for all three stock exchange chiefs rose from the levels seen in the previous year, 2009-10, when Mr Narain's package stood at Rs6.60 crore, Mr Kannan’s at Rs1.60 crore and Massey’s was Rs1.50 crore.

In contrast, NYSE Euronext CEO Duncan Neiderauer saw his total compensation decline to $7.05 million (about Rs 31 crore) in 2010 from $7.2 million in the previous year.

Nasdaq OMX CEO Robert Greifeld’s total compensation fell more sharply to $5.8 million in 2010 from $13.8 million in the previous year.

The NYSE Euronext and Nasdaq OMX are the world’s two largest stock exchanges on a number of parameters, including trading volumes, traded turnover value and the market capitalisation of listed stocks.

On the other hand, Indian bourses NSE and BSE do not figure among the top ten in the world in terms of market cap or turnover value, but are ranked 4th and 7th in terms of the number of trades, as per the first-half figures for 2011.

Interestingly, the latest statistics report from the World Federation of Exchanges (WFE) showed that the trading volume and turnover value fell in the first six months of 2011 at both the US stock exchange giants NYSE Euronext and Nasdaq OMX, as also on the top Indian bourses NSE and BSE.

While the decline in top executive pay at the US bourses was in sync with the decline in their business volumes, a reverse trend has been seen at the Indian exchanges.

The figures for MCX-SX, which trades only in currency market, were not available in the WFE report for the first half of 2011.

Among other major global bourses, London Stock Exchange CEO Xavier Rolet’s salary remained unchanged at 670,000 British pounds in the last financial year, ended March 2011.

However, Mr Rolet’s total remuneration rose to 1.97 million British pounds (from 1.71 million British pounds in the previous year) due to a higher performance bonus payment.

The salary figures were not available for a host of other major exchanges, including the Tokyo Stock Exchange and China’s Shanghai and Shenzhen stock exchanges.

The figures were not comparable for the Hong Kong Exchanges and Clearing (HKEX) either, as it appointed a new CEO last year.

While Paul Chow, who retired as its CEO on 16 January 2010, got a total of 4.89 million Hong Kong dollars, his successor Charles Li’s total remuneration was 16.62 million Hong Kong dollars for 2010.

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FM discusses rupee depreciation with RBI chief

Finance minister Pranab Mukherjee said the government was closely monitoring the situation and intervention in the currency market would be considered whenever necessary

Washington: Finance minister Pranab Mukherjee has said that intervention in the currency market would be considered at an appropriate stage and he has discussed with Reserve Bank of India (RBI) governor D Subbarao the situation created by the depreciating rupee in the past few days, reports PTI.

"I had a discussion with the RBI governor as he is here," Mr Mukherjee told a group of Indian reporters here. The finance minister and RBI governor are here to attend the annual meetings of the Indian Monetary Fund (IMF) and the World Bank.

Mr Mukherjee said the government was closely monitoring the situation and intervention in the currency market would be considered whenever necessary.

"We will watch the situation for some time and as and when intervention would be required that will be considered at that stage," Mr Mukherjee said in response to a question.

In order to check high volatility in local currency value, central banks world over intervene in markets through buying or selling of foreign currencies, as required.

This week alone, the rupee lost 231 paise, or 4.89%, against the US dollar.

On Friday, rupee closed at 49.43 per dollar after falling to 49.90 per dollar. The sharp depreciation in the rupee has been mainly attributed to rising demand for dollars from foreign institutional investors (FIIs) and oil companies.

RBI deputy governor Subir Gokarn had earlier said that there was no move of intervention in the currency market as this time.

"We, at this point, do not see any intervention from a rate targeting view point. That is something that would reflect a change in policy stance, which we are not doing at this point," Mr Gokarn had said.

"If we do intervene at all, it will be with a very narrow objective of smoothening what might be a very volatile market situation, nothing beyond that," Mr Gokarn had said.

Meanwhile, responding to questions on price rise, Mr Mukherjee said substantial inflationary pressure was there because of demand.

"There is a demand side pressure. There is no doubt about it, because we had to resort to huge fiscal expansion from December 2008 to first quarter of 2009... stimulus package (to deal with the global financial crisis was) almost 3% of GDP (gross domestic product)," he said.

The fiscal expansion had its impact on fiscal deficit which went as high as 6.6% of the GDP from 2.5%, he said.

As regards food inflation, he said, it was substantial due to the constraints on the supply side. "Therefore, we have to remove those supply side constraints. We have taken some short and medium term steps," he added.

The headline inflation is nearing 10% despite the RBI raising key policy rates for 12 times since March 2010 to contain price rise.

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