Photographer: Dhiraj Singh/Bloomberg

Indian Companies Curb Global Loan Costs by Refinancing $5.1 Billion

  • Firms replaced the most offshore loans in a year last quarter
  • Novelis said in talks with banks for $5.3 billion refinancing

Indian companies refinanced offshore loans at the fastest pace in a year last quarter, rushing to take advantage of improved confidence in Asia’s fastest-growing major economy as borrowing costs start to rise.

Corporate borrowers took out $5.1 billion of loans for refinancing in the period at an average margin of 140 basis points over the London interbank offered rate, data compiled by Bloomberg show. That’s up from 98 basis points in the three months ended Dec. 31, the lowest since the second quarter of 2008.

“Global lenders have a positive view on Indian credit as they are encouraged by the stronger growth dynamics and a robust outlook on the economy,” said Rajiv Datt, New Delhi-based managing director at Indian Railway Finance Corp., which refinanced loans late last year. “The pipeline should get stronger as liquidity globally ensures that funding will be at reasonable costs.”

International lenders are showing an appetite for fundraising by the nation’s companies after gross domestic product grew 7.3 percent in the three months ended Dec. 31, the fastest among Asia’s 17 biggest economies. That’s helping reduce debt costs as a total of $63 billion of foreign-currency loans fall due by the end of 2019, according to data compiled by Bloomberg.

Pipeline

Novelis Inc., the Atlanta-based unit of Indian aluminum maker Hindalco Industries Ltd., is in discussions with banks to refinance about $5.3 billion of loans, people familiar with the matter said April 7. As global commodity prices stabilize, ONGC Videsh Ltd., the overseas unit of the nation’s largest explorer, was among companies that refinanced debt in the last quarter. ONGC Videsh signed a $1.775 billion five-year loan with eight lenders last month, people familiar with the matter said on March 10. ONGC spokesman Pallab Bhattacharya wasn’t immediately available to comment when contacted by phone.

Birla Carbon, also controlled by Novelis’ owner Aditya Birla Group, signed a $700 million term loan and a $225 million revolver loan as it refinanced last month, according to data compiled by Bloomberg. Pragnya Ram, a spokeswoman for Aditya Birla Group, declined to comment on the refinancing plans of either Novelis or Birla Carbon.

Rural Electrification Corp. signed a $120 million three-year loan with Australia & New Zealand Banking Group Ltd. last month for refinancing, the company’s finance director Ajeet Agarwal said in a phone interview April 20.

Shifting Profile

“There’s been a shift in the lender profile for Indian borrowers from European banks to East Asian and Middle East lenders that has helped the momentum,” according to Ananda Bhoumik, chief analytical officer at India Ratings and Research, a unit of Fitch Ratings Ltd. “The driver for refinancing will be the repayment schedule of companies and global interest rates this year.”

Companies in India’s material industry, which includes Hindalco and other metal companies such as Tata Steel Ltd. and Vedanta Ltd., were the most indebted group after financials and industrials, according to data compiled by Bloomberg. India’s rupee fell to the lowest level in almost a month on Monday, dropping 0.3 percent to 66.69 per dollar, on speculation importers are stepping up dollar purchases as the U.S. Federal Reserve considers interest-rate increases.

“There are many metal companies where the financial position has weakened significantly on account of weaker commodity prices and high debt levels from past expansion,” said Mehul Sukkawala, a Singapore-based analyst at Standard & Poor’s. “We believe such companies could face higher cost of funding.”

Total debt in the materials sector was 6.09 trillion rupees, led by Tata Steel with 807 billion rupees, Vedanta with 720 billion rupees and Hindalco with 685 billion rupees, according to data compiled by Bloomberg.

“Lengthening the maturing of their loans is an appropriate strategy for these companies to cushion the high leverage on their balance sheets,” according to Rajesh Mokashi, deputy managing director at CARE Ratings Ltd.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE