The rising credit costs in tight financial markets have hit India Inc's plans to raise funds through external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs). The borrowings through this route dipped to $ 862 million in February 2008.

Indian companies raised $ 2.24 billion in November 2007, $ 2.26 billion in December 2007 and $ 1.88 billion in January 2008, according to the Reserve Bank of India [Get Quote] data. The total ECB flow in April-December 2007 was estimated $ 16.3 billion as against $ 9.8 billion in the corresponding period in 2006.

Besides adverse global market conditions, the restrictions on the end use and a cap on interest rates charged above the London Inter-Bank Offered Rate (Libor) have reduced the rush for ECBs and FCCBs.

Indian companies found these instruments attractive when international interest rates were low in a fund-flush environment. Besides, the conversion into equity for FCCBs happened at a price that was less than the prevailing market price. So investors could profit on sale of equity, a senior investment banker of a global banking outfit said.

But that was before credit markets came under the grip of US sub-prime crisis, Moreover, the Indian equity market has also cooled down (shed a lot of value), a senior investment banker of a global banking outfit said.

Now, with a rise in risk perception and sapping of liquidity, interest rates charged by banks have also moved up sharply to account for risks.

For foreign investors in FCCBs, the interest level has come down as the conversion price for bonds is much higher than the prevailing price in the market.

Sintex Industries [Get Quote], a textile and plastic product manufacturer, raised $ 300 million through ECBs (under automatic route) in February and was the biggest borrower, accounting for more than a third of India Inc's overseas debt raising during the month.

It will use the funds for importing capital goods and make overseas investment to support business growth, RBI said.