Lower rates, hedging costs have made foreign loans a hit

By | May 16, 2011

A recent press report said that foreign loans have suddenly become very attractive scheme for Indian corporate due to the interest rate differential and a sharp drop in hedging costs. Top Indian corporate can now raise fully hedged foreign loans at 100 to 200 basis points below domestic loans. This arbitrage opportunity has led to banks seeing rising inquiries.

The Reserve Bank of India has been progressively raising rates for more than a year where as the US Federal Reserve has stayed away from rate hikes. Reports said that the US dollar benchmark interest rates are close to their historical lows which have actually made the borrowing in USD reach a very attractive proposition. Mr. Rajiv Nayar, MD & head of Capital Markets Origination, Citi India said that even after swapping to INR, the all-in cost works out to be attractive than rates available in the INR markets currently.

Reports also said that Reliance Industries, which completed a $1.5 billion bond issue led by Citi, is understood to be eyeing the global markets once again. Bharat Petroleum has also raised a $200 million syndicated foreign currency loan, ICICI Bank with its $1 billion offering have hit the market with medium-term notes.

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About Pradeep Yuvaraj

Pradeep Yuvaraj is a Co-Founder and Director at Finerva Financial Solutions Private Limited, a financial education company focused on personal finance education. He has penned over 250 articles relating to Personal Finance and clocked over 500 hours of educating individuals on managing personal finance. He is a serial entrepreneur and has been associated with 7 Start-ups. His entrepreneurial experience spans industries as varied as Education, Gas Engineering, Automobile Design, Software development and more recently a Pure play presentation design company. Prior to turning entrepreneur in 2005, he has worked for 3 of the top ten companies of the world - Shell, ExxonMobil and Total SA. This experience included handling Branch Operations, Channel Sales and Business Development across 5 states over a period of 8 years. He holds an MBA from Symbiosis and an Electronics Engineering Degree from the University of Pune.

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