Insights into ECB Market Trends and Regulatory Framework
Explore the latest trends and outlook in External Commercial Borrowings (ECBs) with a focus on market factors, concerns, outstanding amounts, purpose-wise breakup, interest rates, and other finance avenues. Gain valuable insights into the regulatory framework governing ECBs along with the minimum average maturity (MAM) periods for different tracks of lenders and investors.
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Presentation Transcript
Trends & Outlook in ECBs D. R. Dogra CARE RATINGS
Contents Trends in ECB Market Factors Concerns Way Forward ECBs: Trends and issues 3rd Feb , 2015
External Commercial Borrowings over the years 40.0 34.9 32.9 30.6 30.0 27.6 25.0 24.5 20.2 20.1 $ bn 20.0 17.6 17.6 11.4 10.1 10.0 0.0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 9M FY16 ECBs: Trends and issues 3rd Feb , 2015
Outstanding ECBs 200.0 182.2 180.8 149.3 140.1 120.1 100.5 $ bn 100.0 70.7 62.5 62.3 41.4 26.5 26.4 0.0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 H1 FY16 ECBs: Trends and issues 3rd Feb , 2015
Purpose wise Breakup of ECB for 9MFY16 Purpose Refinancing On Lending/Sub Lending Rupee Expenditure Import of Capital Goods Telecommunication New Projects General Corporate Purpose Modernization Miscellaneous Working Capital Power Ports Overseas Acquisition Urban Infrastructure Micro Finance Share in total (%) 38.5 12.9 11.8 10.7 5.0 4.7 4.6 3.5 2.8 1.9 1.2 1.0 1.0 0.1 0.1 ECBs: Trends and issues 3rd Feb , 2015
ECB and Interest Rate 40.0 11 10.19 10.48 30.0 10 10.19 10.09 9.60 $ bn 20.0 % 9.12 34.9 32.9 30.6 27.6 9 24.5 10.0 20.1 0.0 8 FY11 FY12 FY13 FY14 FY15 9M FY16 ECB Interest Rate (%) ECBs: Trends and issues 3rd Feb , 2015
ECB and other Finance Avenues 1,000,000 800,000 600,000 Rs cr 400,000 200,000 - FY11 FY12 FY13 FY14 FY15 9M FY16 ECB Debt Raised Incremental Credit ECBs: Trends and issues 3rd Feb , 2015
Regulatory Framework The lenders and investors are divided into three tracks Minimum Average Maturity (MAM) Period Track I (Eg: Companies in manufacturing, shipping, software, airlines etc) 3 years for ECB upto USD 50 million or its equivalent 5 years for ECB beyond USD 50 million or its equivalent Track II ( Eg: Infrastructure companies, holding companies etc) 10 years irrespective of the amount Track III ( Eg: NBFCs, MFIs, companies involved in R&D) Same as under Track I ECBs: Trends and issues 3rd Feb , 2015
Regulatory Framework All-in-Cost (AIC) Track I For ECB with min average maturity period of 3 to 5 years - 300 basis points per annum over 6 month LIBOR or applicable bench mark for the respective currency. For ECB with average maturity period of more than 5 years 450 basis points per annum over 6 month LIBOR or applicable bench mark for the respective currency Track II The maximum spread over the bench mark will be 500 basis points per annum. Remaining conditions will be as given under Track I Track III Cost linked with market conditions ECBs: Trends and issues 3rd Feb , 2015
Regulatory Framework Individual Limits The individual limits of ECB that can be raised by eligible entities under the automatic route per financial year for all the three tracks are set out as under: Upto USD 750 million or equivalent for the companies in infrastructure and manufacturing sectors; Upto USD 200 million or equivalent for companies in software development sector; Upto USD 100 million or equivalent for entities engaged in micro finance activities; and Upto 50 million or equivalent for remaining entities. ECBs: Trends and issues 3rd Feb , 2015
Contents Trends in ECB Market Factors Concerns Way Forward ECBs: Trends and issues 3rd Feb , 2015
Differential Interest Rates 9.00 8.00 8.00 8.00 8.50 7.75 7.00 6.75 6.00 5.00 4.00 3.25 3.25 3.25 3.25 3.26 3.00 2.00 2011 2012 2013 2014 2015 Repo rate Fed Prime rate ECBs: Trends and issues 3rd Feb , 2015
Perception on Exchange rate 9 8.49 8 7.94 7.58 7.40 7.01 7 6.41 6 FY11 FY12 FY13 FY14 FY15 FY16* Forward Premia of $ (6 months) ECBs: Trends and issues 3rd Feb , 2015
Derivatives Market Months No of Contracts for the month of Jan 16 February 52,92,090 March 4,82,166 April 1,92,469 May 80,933 June 34,355 July 26,176 August 2,400 September 2,338 October 1,330 ECBs: Trends and issues 3rd Feb , 2015
Company Specific Issues Small companies preference for banks Given the state of their balance sheets and governance levels, may not be able to access the market The country rating becomes important as it acts as one of the benchmarks for pricing in the market Company rating becomes important Lower rated companies find it difficult to use this avenue Often a CDS written by a bank on such loans taken where the swap cost could be a deterrent ECBs: Trends and issues 3rd Feb , 2015
Contents Trends in ECB Market Factors Concerns Way Forward ECBs: Trends and issues 3rd Feb , 2015
Pressure on External Debt 38.1 37.7 40.0 34.2 33.5 33.3 31.6 27.8 27.8 30.0 27.1 24.1 19.7 19.0 20.0 % 10.0 0.0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 H1 FY16 Increasing share of ECBs in the external debt ECBs: Trends and issues 3rd Feb , 2015
Corporate Concerns Access to the market Limits placed by the RBI Ceiling on rates Un-hedged position Stress on balance sheet Repayment concerns ECBs: Trends and issues 3rd Feb , 2015
Contents Trends in ECB Market Factors Concerns Way Forward ECBs: Trends and issues 3rd Feb , 2015
Way Forward ECB important avenue for resources Mismatch between demand and supply in the India 1 trillion dollar investment needed in infrastructure and manufacturing Banks have limitations in the form of NPAs Limited institutions to look at other form of borrowing FDI more sector specific Assuming a 1:1 ratio, borrowing through ECB can be up to $ 30 billion ECBs: Trends and issues 3rd Feb , 2015
Way Forward Need to build a buoyant derivatives market Necessary to hedge in derivatives Long term contracts ECB limits to be liberalized further in a graded manner with ceiling to be increased based on market conditions ECBs: Trends and issues 3rd Feb , 2015
Thank You ECBs: Trends and issues 3rd Feb , 2015
