Half of India Inc’s $200 billion forex debt is unhedged: Crisil

by Joe Oliver, Forex Trading-Pips

Foreign borrowings to hit Nifty companies hard, an update from Business-Standard:

indian_rupeeA falling rupee is a $100 billion worry for corporate India. That’s the amount of foreign currency debt they have that is unhedged. According to a latest study by rating agency Crisil, of the $ 200 billion foreign currency debt (as on end March, 2013)  of Indian companies , 45% is short-term.

Even the blue-chip Nifty companies (excluding those in the banking and financial services space) have 40% of their debt in foreign currency.

These companies, which borrowed abroad to take advantage of lower interest rates, will have to bear the burden of increased interest payments, marked-to-market losses and payment for rollover of hedged positions on their loans, according to a report by the research division of rating agency Crisil.

The rupee has depreciated around 11% against the dollar since May, which is also the worst performing currency in Asia and also among BRICS economies, barring South Africa. A weakening rupee increases the debt burden for companies that have raised foreign currency loans.

Mukesh Agarwal, President, Crisil Research said that a significant portion remains unprotected from the volatility.

“…only half their forex exposure is hedged. Persistent weakness in the rupee and heightened volatility has reduced the benefits of borrowing overseas,” he said in a statement.

Th recent fall in the currency is due to a combination of both domestic and global factors. While the country’s high current account deficit  weighing on rupee, concerns over US Fed will slow the pace of its asset purchase programme, known as Quantitative Easing (QE) 3, has also made foreign institutional investors withdrawing from emerging markets. Current account deficit for 2012-13 hit a record high of 4.8% of GDP, much higher than the Reserve Bank of India’s tolerance zone of 2.5%.

Sonam Udasi, head of research at IDBI Capital suggested that the smaller companies are more likely to be hit by the rupee fall.
“Most of the companies have enough access to banking leverage, it is only the small companies which could face liquidity issues,” he said.

…. more at Half of India Inc’s $200 billion forex debt is unhedged: Crisil

More reading