Corporates are refinancing loans in yen against the earlier trend of dollar refinancing as the London interbank bid and offer rate-based yen loans are still cheaper than dollar loans.
Over the last two years, while Libor on the dollar has gone up substantially from 1.1 per cent to 3.6 per cent, the interest rate on yen borrowings continue to remain almost at 0.07 per cent.
Power Finance Corporation and Housing Development Finance Corporation are refinancing their five-year loans raised in 2002-03. Both the organisations are raising about yen 12 billion each (about $100 million) for less than three years to refinance their earlier loans.
The Libor for six months in dollar terms works out to 3.64 per cent, while in yen it works out to just 0.07 per cent. With every other component -- withholding tax, spread and transaction charges -- remaining uniform, borrowing in yen works out cheaper.
Bharti Teleservices is also scouting for refinancing rates but has yet to finalise its plans. HDFC is further contemplating another tranche of yen 12 billion external commercial borrowing for refinancing old loans. Another shift in the ECB market is that corporates prefer to go for loan syndication rather than borrowing through bonds.
This is even as these bonds are liquid and tradable. However, following the downgrading of bonds of the US motor giants -- General Motors and Ford, the spread for raising funds through dollar bonds have gone up.
At the same time, appetite for Indian papers has gone up substantially with Asian and West Asian banks participating in the loan syndication against the earlier trend of participation by a few European and American banks.
Market dealers said corporates were earlier wary of getting a yen-denominated loan on account of the volatility in dollar-yen rates. It is difficult to manage these rates as they are floating and need to be reset every six months.
Today, though volatility in rates continue, the interest rate differential between dollar Libor and yen Libor is significant to encourage a shift in the trend.
Further, the interest spread over Libor for Indian corporate paper has also come down sharply following the huge appetite for domestic papers.
