Raising overseas debt has become prohibitively expensive due to the depreciating rupee.
Mergers and acquisitions (M&As) in India have moved into the slow lane, dropping 43 per cent in terms of deal value to touch $13.37 billion since January this year to date, compared to the same period in the last year. According to data sourced from Bloomberg, Indian companies reported deal value worth $23.5 billion between January and March 22, 2023. Data Infrastructure Trust's acquisition of American Tower Corporation's India telecom towers business for $2.5 billion was the top deal for the ongoing quarter so far, followed by the Highway Infrastructure Trust's acquisition of PNC Infratech's road projects for $1.08 billion.
Foreign banks and private credit funds are queuing up to fund acquisitions by Indian companies who are buying out their local rivals. The Adani Group, Torrent Group, and the Hindujas have approached several foreign banks and private equity (PE) firms to fund their acquisitions. Global investors have about $2 trillion of funds to invest, and about $100 to $150 billion is set aside for India, according to an estimate by JP Morgan.
The Hinduja Group on Monday said it is looking at bidding for Satyam Computer Services but yet to take a decision.
Foreign currency loans raised by Indian companies nosedived to $210 million in the September quarter (Q2), 93.3 per cent less than the year-ago period when five firms raised $3.1 billion. The Q2 amount is the lowest since December 2003 quarter when India Inc raised $191 million. Companies cited volatility in the currency markets, sharp rise in interest rates in the United States, and fund availability in India as the main reasons behind the sharp fall.
Reliance Industries, the Tata group, Bharti Airtel and Aditya Birla are among Indian conglomerates that have hedged their revenue and costs linked to the US dollar, giving them financial cover as the rupee fell past 80 against the greenback on Tuesday.
Indian corporate are fast tapping the international bonds market to raise funds for their operational expenses even as they reduce their presence in the rupee bond market. As bonds are costlier for companies and investors are more sceptical than the banks, chief financial officers say they are looking at other avenues for raising funds in the coming months as dollar bond rates are lower in the range of 100 to 250 basis points. "For corporate with reasonable credit quality, the Indian bond market has become less of an option from a cost point of view. "In addition, conditions imposed in the Indian bond market by investors post Franklin episode have also become very onerous," said Prabal Banerjee, president-finance of Bajaj group. "Hence very few corporate are looking at the local bond market for resource mobilisation, since both, bank loans and the overseas bond markets are much more attractive," he said.
Besides the pandemic that resulted in higher interest rates, the default by Future Retail has dealt a blow to investor sentiment.
As the Indian currency hovers around its lowest versus the US greenback, several smaller and mid-sized companies are expected to face rough weather as almost 44 per cent of the foreign loans taken by Indian companies remained unhedged. According to the data sourced from the Reserve Bank of India, Indian companies raised around $38.2 billion in the financial year ended in March. Of this, only 56 per cent of the loans are hedged while the rest of the foreign loans remain unhedged, thus risking the companies to forex volatility.
To ease pressure due to the coronavirus lockdown, corporate have asked banks and the government for a six-month liquidity line, so that they can pay off their suppliers and employees.
The dollar bond market has been a favourite for Indian firms in 2014.
Given the stability of the rupee over the last 10 months, many companies have been tempted not to hedge their foreign currency risk.
The private companies announced projects worth Rs 11.33 lakh crore (Rs 11.33 trillion) during 2014-16.
The rupee's fall against the dollar is bad news for companies which have increased their exposure to foreign currency loans in recent years.
While far from being a currency war, India does not have much of an option but to depreciate to accommodate its exports at a time when China shows its intent to let its currency depreciate.
India Inc expects the RBI to cut interest rates by early next year.
Corporates' forex borrowings have grown at a CAGR of 15.6% since 2008.
With commodity markets remaining soft and uncertain, it is likely the money will flow into equity markets with strong upsides, such as India.
Tight liquidity will hit over-leveraged and cash-hungry companies, spare conservative ones
After land survey, field survey would start and on completion of that process, the land owners would receive their respective lands
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Revenue yield on every rupee of investment fell to Rs 1.06 in FY13 from Rs 1.20 in FY08.
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