Syndicated Loans Slide 87% as Debt Costs Swell: India Credit

Nov. 24 (Bloomberg) -- India’s companies cut borrowings in the global syndicated-loan market by 87 percent this month as the rupee’s drop to a record low increases the cost of servicing overseas debt.

Uco Bank, a state-owned lender based in Kolkata, raised $113 million on Nov. 4 and was the lone borrower this month, compared with the $1.3 billion five companies borrowed in October, according to data compiled by Bloomberg. The rupee weakened to 52.73 per dollar this week and posted the worst drop among Asia’s most-traded currencies this month on concern India won’t be able to rein in its budget and trade deficits.

Companies are being squeezed after non-rupee loans slumped to the least since August 2009 and local borrowing costs surged 225 basis points this year. India has boosted its repurchase rate on seven occasions in 2011 and it now stands at 8.5 percent, nearly seven times the euro zone’s benchmark and almost two percentage points more than China’s.

“The rupee’s fall has had an impact on sentiment as it makes it costlier to service foreign-currency loans,” Parthasarathi Mukherjee, the Mumbai-based president of treasury and international banking at Axis Bank Ltd., which has arranged the second-largest amount of loans this year, said in an interview on Nov. 22. “Funds overseas are not available as global liquidity remains tight.”

Syndicated debt, loans offered by a group of lenders and provided to a single borrower, raised by local companies has slumped since Sept. 30 as relative borrowing costs increased. Loans issued since the start of October totaled $1.3 billion, compared with $13.1 billion in the previous three-month period, according to data compiled by Bloomberg.

Liquidity ‘Squeezed’

The average yield that Indian companies pay over U.S. Treasuries to borrow in dollars was 543 basis points, or 5.43 percentage points, this quarter, compared with 453 basis points in the three months ended September.

“Dollar liquidity is squeezed since August, which has caused premiums to widen,” J. Moses Harding, a Mumbai-based executive vice president at IndusInd Bank Ltd., said in an interview on Nov. 22. “This uncertainty will continue for at least another year.”

The yield premium that companies must pay over government debt has widened this year, making it more expensive to raise local-currency loans. The difference in yields between three-year Indian sovereign bonds and corporate debt rated AAA by Standard & Poor’s Indian unit, Crisil Ltd., was 196 basis points yesterday, compared with 150 basis points at the end of last year.

Companies have borrowed 2.4 trillion rupees ($46 billion) of rupee loans in 2011, 20 percent less than in the whole of 2010, according to data compiled by Bloomberg.

Lagging Behind

India’s government bonds have underperformed debt in Asia’s biggest emerging markets this quarter. The yield on the nation’s 10-year notes has climbed 37 basis points since the end of September, compared with a slide of 28 basis points in China and a drop of 19 in South Korea. Yields on 8.79 percent rupee-denominated notes due in November 2021, the newest benchmark securities, fell one basis point to 8.80 percent, according to the central bank’s trading system.

The average difference in yields between India’s 10-year bonds and similar-maturity U.S. Treasuries was 692 basis points, compared with 591 in the third quarter.

The rupee snapped an eight-day drop to advance 0.3 percent to 52.23 per dollar after the central bank took steps to boost the supply of dollars in the financial system. The rupee lost 14.5 percent in 2011, according to data compiled by Bloomberg.

Currency Interventions

The central bank “can and will intervene” in the rupee to ensure that exchange-rate volatility doesn’t impair macroeconomic stability, Governor Duvvuri Subbarao told reporters in the southern city of Hyderabad on Nov. 22. Subbarao said yesterday he can’t confirm whether policy makers have intervened in the market.

The Reserve Bank of India removed a $100 million limit on net foreign-exchange sales via currency swaps, according to a statement on its website yesterday. The move will allow companies with foreign income to sell more dollars in the local market, according to Standard Chartered Plc.

Policy makers also increased the interest rates banks can charge on deposits by Indians living abroad and raised the limit on rates paid by the nation’s companies on some overseas borrowings.

India’s Finance Minister Pranab Mukherjee is aiming to cut the budget deficit to a four-year low of 4.6 percent of gross domestic product by March. The target will have to be reviewed, R. Gopalan, secretary of economic affairs at the Finance Ministry, said on Nov. 9. The trade shortfall widened to a 17-year high of $19.6 billion last month.

Default Swaps

Europe’s worsening sovereign-debt crisis has driven the cost of protecting the debt of Indian companies against non-payment higher. The average cost of credit-default swaps of eight issuers has climbed to 404 basis points from 332 at the end of last month, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets.

The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a nation or company fail to adhere to its debt agreements.

“The momentum for raising overseas loans should pick up because whatever depreciation in the rupee had to happen, has happened,” Prabal Banerji, chief financial officer at Adani Power Ltd. in the western Indian city of Ahmedabad, said in an interview on Nov. 22. “Companies should not be concerned about the rupee’s depreciation as once Greece, Italy and other European economies show signs of recovery, the local currency will appreciate.”

Rupee Volatility

Adani Power, part of the Adani group of companies chaired by billionaire Gautam Adani, plans to increase its dollar-loan facility by 50 percent to $750 million.

State-owned Bank of Baroda, which has approval from the central bank to raise up to $1 billion from overseas loans by March, predicts the rupee’s outlook will remain unclear. The implied volatility on one-month dollar-rupee options rose to this year’s high of 13.9 percent on Nov. 22, according to data compiled by Bloomberg. Traders quote the gauge of expected swings in exchange rates as part of options prices.

“There are more difficult times lying ahead of us because of the exchange-rate level,” Rajiv Kumar Bakshi, Bank of Baroda’s Mumbai-based executive director, said in an interview on Nov. 22. “The rupee’s slide and the volatility factor are going to weigh heavily on the mindset, at least in the short term.”

To contact the reporters on this story: Anurag Joshi in Mumbai at; Anoop Agrawal in Mumbai at

To contact the editor responsible for this story: Shelley Smith at