Rupee crash, Covid-19 to make India Inc's overseas debt repayments costlier

[CrazyZ]

Rupee crash, Covid-19 to make India Inc's overseas debt repayments costlier
Bankers said some of the firms may default on their overseas loans as their cash flows get impacted due to falling sales due to the shutdown
Dev Chatterjee | Mumbai Last Updated at March 19, 2020 11:07 IST


Overseas loan repayments of several Indian firms, due by March-end or later, will become costlier due to the rupee crash and Covid-19 pandemic, which would impact cash flows of all companies, bankers warn.

Bankers said overseas debt worth billions of dollars of top corporate houses is due to be refinanced or will be repaid in the March and subsequent quarters. "Whatever option the company chooses between refinancing and repayment, it would end up paying more due to the 4 per cent fall in rupee's value versus the dollar since January," a banker said.

According to Bloomberg data, Indian companies will have to repay overseas debt worth $7.5 billion in the June quarter.

Global rating firm Moody's warned that corporate liquidity could face severe pressure if the bond markets remain challenging.

"The lack of issuance in recent weeks, combined with an expected sharp weakening of profits, will strain the liquidity of companies in some sectors. Highly-rated companies should be able to withstand a temporary shutdown of the bond markets and maintain alternative sources of funding. Lower-rated companies, with weaker liquidity and near-term bond refinancing, requirements will be at risk," it said.

Bankers said some of the firms may default on their overseas loans as their cash flows get impacted due to falling sales due to the shutdown.

Financial research firm CreditSights said in a report that Vedanta Resources, which has consolidated debt of $2 billion maturing by March 2021, may face liquidity crunch and repayment crisis on its dollar bonds. It warned that its unsecured dollar bond holders may see zero recovery if the fall in oil and metal prices persists due to the pandemic and oil crash – which went below $25 a barrel on Wednesday.

A Vedanta official, however, said the company has not defaulted in the past and has a track record of delivering growth, meeting all obligations to debt holders on schedule. "Vedanta has delivered 15 per cent CAGR (compound annual growth rate) production growth in the past 15 years and is on the cusp of seeing the next phase of strong growth from its world class asset base," said a Vedanta spokesperson.

"Whilst commodity prices have seen a marked sell off in the recent weeks, we have been through these cycles before and are well positioned to weather a downturn. Vedanta’s leading cost position means it will outperform on relative margins through any downturn we see. Likewise, we will see some of the highest Ebitda (earnings before interest, tax, depreciation and amortisation) margins in any market bounce back. In the meantime, we run our business with strict capital discipline, our focus is on delivering the best volumes at the lowest cost, in a safe and responsible way," the official said.

State Bank of India Chairman Rajnish Kumar said the bank was assessing the situation and help companies if need be. "Several sectors such as aviation, tourism, and small transport operators are witnessing impact (of coronavirus). There will be some effect on the economy," he said.

https://www.business-standard.com/a...-debt-repayments-costlier-120031900334_1.html

 

[CrazyZ]

What I find amazing is that the USA is debasing its currency by printing dollars (QE)... yet its value internationally is increasing vs other currencies. That's some financial wizardry.

 

[Dark1]

Indian foreign exchange reserves have touched record 486 b usd . Cant understand why RBI is deliberately letting the rupee devalue. We are not a predominantly export economy that cheaper exports are our mainstay. RBI keeps on buying the dollars from the market and strengthening the dollar.
Anyone has a logical reason ?

 

[CrazyZ]

Indian rupee was/is kept artificially higher for political reasons.

The IsaqDollar Rules of Financial Management were adopted by the IoG....borrowing from RBI...

Without deeper structural reforms the make-feel-good-on-the-media economy has been so far a jobless-growth in the past years...where only corporate sector benefited...plus the whitewashing of blackmoney by the Indians on their stock exchange... not too different from what the CriminalEnterprise has been doing in Pakistan.

Devaluation is going to be extremely painful but the correct step... the more Indians avoid it...the more pain it will accumulate down the road.

For now there is NO Indian plan about short and medium term...let alone a 25yr Plan.

In all this the poor shall suffer and the lower middle and middle class... which is tragic..since it could have been avoided.

However, the Regime is out of ideas on every front...

@Juggernaut_the_Gangu

I think its the other way around. Ishaq Dar was trying to replicate the Indian strategy on boosting your forex reserves by selling bonds in international markets. In order for this to work you need sustained foreign interest in buying your nations debt.....to keep the ponzi scheme going. India has been able to do this....Pakistan was not.

Indian foreign exchange reserves have touched record 486 b usd . Cant understand why RBI is deliberately letting the rupee devalue. We are not a predominantly export economy that cheaper exports are our mainstay. RBI keeps on buying the dollars from the market and strengthening the dollar.
Anyone has a logical reason ?

Their stuck. If they use India's Forex reserves to boost the rupee...they could eventually face a balance of payments crisis....since this Viral crisis could last a few months. If they let the rupee fall, corporate India is gonna have a hard time repaying its foreign denominated loans combined with the economic slowdown....many could default. But RBI may calculate that this is lesser of two evils...from its prospective.

 

[Arulmozhi Varman]

Indian foreign exchange reserves have touched record 486 b usd . Cant understand why RBI is deliberately letting the rupee devalue. We are not a predominantly export economy that cheaper exports are our mainstay. RBI keeps on buying the dollars from the market and strengthening the dollar.
Anyone has a logical reason ?

What do you mean? You say letting Rupee devalue is good or bad? Devaluation is good for Indian exports as far as I know.
RBI doesn't need to "buy" dollars if FII and FDI comes in.
Indian dollar bonds don't dominate our Forex. They are a very little percentage of our overall forex.

I think its the other way around. Ishaq Dar was trying to replicate the Indian strategy on boosting your forex reserves by selling bonds in international markets. In order for this to work you need sustained foreign interest in buying your nations debt.....to keep the ponzi scheme going. India has been able to do this....Pakistan was not.


Their stuck. If they use India's Forex reserves to boost the rupee...they could eventually face a balance of payments crisis....since this Viral crisis could last a few months. If they let the rupee fall, corporate India is gonna have a hard time repaying its foreign denominated loans combined with the economic slowdown....many could default. But RBI may calculate that this is lesser of two evils...from its prospective.

Unlike Pakistan our Forex doesn't contain majority from bonds. Last year we raised only about 10B of dollar bonds from international market. Considering our size 10B is peanuts. Pakistan raised bonds cos that was the only way it could have a forex in the first place to avoid BoP. Remember our total services plus merchandise exports are like 480B and add some 70B of remittances.

I am not an expert but have an basic idea of how economy works.

 

[Indian wonk]

I think its the other way around. Ishaq Dar was trying to replicate the Indian strategy on boosting your forex reserves by selling bonds in international markets. In order for this to work you need sustained foreign interest in buying your nations debt.....to keep the ponzi scheme going. India has been able to do this....Pakistan was not.

Nope , try again

Their stuck. If they use India's Forex reserves to boost the rupee...they could eventually face a balance of payments crisis....since this Viral crisis could last a few months. If they let the rupee fall, corporate India is gonna have a hard time repaying its foreign denominated loans combined with the economic slowdown....many could default. But RBI may calculate that this is lesser of two evils...from its prospective.

Nope , try again . Try Macro economics 101

 

[CrazyZ]

According to the world bank for 2018:
https://wits.worldbank.org/countrysnapshot/en/IND/textview

• The total value of exports (FOB) is US$ 322,292 million.
• The total value of imports (CIF) is US$ 617,946 million.

That's a $295 billion trade deficit. Subtract the 70B in remittances... Thats still a $225 billion trade deficit. Over the last few years....Exports and investments are both down in India......how does the forex reserve keep climbing??

Even if Indian government is not taking foreign dominated loans...Indian corporation are.....so foreign loans are a bigger percentage of your forex than you realize.

 

[Dark1]

What do you mean? You say letting Rupee devalue is good or bad? Devaluation is good for Indian exports as far as I know.
RBI doesn't need to "buy" dollars if FII and FDI comes in.
Indian dollar bonds don't dominate our Forex. They are a very little percentage of our overall forex.



Unlike Pakistan our Forex doesn't contain majority from bonds. Last year we raised only about 10B of dollar bonds from international market. Considering our size 10B is peanuts. Pakistan raised bonds cos that was the only way it could have a forex in the first place to avoid BoP. Remember our total services plus merchandise exports are like 480B and add some 70B of remittances.

I am not an expert but have an basic idea of how economy works.

When dollars come into a local market, the oversupply results in reducing the value of the dollar wrt local currency. But if the local bank does not want a strong rupee , it removes the oversupply of the dollars from the market, driving the dollar up. This is done to make exports competitive by making our goods cheap. This is good for a export driven economy like china but is of limited use for India , which is more of a domestic consumption market.
We are receiving a lot of fdi which is being removed from the market by FBI and thus weakening the rupee. I dont understand why we require 500 b foreign exchange reserves as it's much more than the 9 month of import reserves normally required. Now even the oil prices are down , so BOP is not a issue at all.

 

[xyxmt]

What I find amazing is that the USA is debasing its currency by printing dollars (QE)... yet its value internationally is increasing vs other currencies. That's some financial wizardry.

in times of crises people start buying USDs, even Canadian dollar lost more than 20% in last month

 

[Indian wonk]

According to the world bank for 2018:
https://wits.worldbank.org/countrysnapshot/en/IND/textview

• The total value of exports (FOB) is US$ 322,292 million.
• The total value of imports (CIF) is US$ 617,946 million.

That's a $295 billion trade deficit. Subtract the 70B in remittances... Thats still a $225 billion trade deficit. Over the last few years....Exports and investments are both down in India......how does the forex reserve keep climbing??

Even if Indian government is not taking foreign dominated loans...Indian corporation are.....so foreign loans are a bigger percentage of your forex than you realize.

The central bank has been incessantly buying dollars, soaking up whatever foreign inflow entered Indian shores. It has swallowed $15.5 billion from the spot forex market between July and November, and currency dealers believe it hasn’t stopped yet.

Another reason for RBI to keep a grip on the rupee is competitiveness. The real effective exchange rate, based on a trade-weighted index of 36 currencies, shows the rupee is overvalued by a stark 17% as of December, although economists say the overvaluation is mild once the Chinese yuan is taken out of the mix.

https://www.livemint.com/market/mar...er-force-than-coronavirus-11581446545069.html

 

[Dark1]

According to the world bank for 2018:
https://wits.worldbank.org/countrysnapshot/en/IND/textview

• The total value of exports (FOB) is US$ 322,292 million.
• The total value of imports (CIF) is US$ 617,946 million.

That's a $295 billion trade deficit. Subtract the 70B in remittances... Thats still a $225 billion trade deficit. Over the last few years....Exports and investments are both down in India......how does the forex reserve keep climbing??

Even if Indian government is not taking foreign dominated loans...Indian corporation are.....so foreign loans are a bigger percentage of your forex than you realize.

Your figures are wrong.
Here is the official figures-
https://m.rbi.org.in//Scripts/BS_PressReleaseDisplay.aspx?prid=48273

Quarterly bop of - 14.6 billion ie around 60 b usd per annum.
We don't require 500 b usd , its a waste of resources.

 

[Arulmozhi Varman]

When dollars come into a local market, the oversupply results in reducing the value of the dollar wrt local currency. But if the local bank does not want a strong rupee , it removes the oversupply of the dollars from the market, driving the dollar up. This is done to make exports competitive by making our goods cheap. This is good for a export driven economy like china but is of limited use for India , which is more of a domestic consumption market.
We are receiving a lot of fdi which is being removed from the market by FBI and thus weakening the rupee. I dont understand why we require 500 b foreign exchange reserves as it's much more than the 9 month of import reserves normally required. Now even the oil prices are down , so BOP is not a issue at all.

Yes and no. Having lots of forex helps us to experience shocks just as now. Our exports and services is going to get affected for this year. We cannot be sure how much imports is going to be impacted. So we need a buffer stock.

Moreover we are trying to create an export driven economy and in that case we need a weaker rupee to make case for our ineffeciencies in our logistics and supply chain.

So if RBI removes excess dollars from Forex where is that " dollar" placed? Forex is the foreign currency kept in all banks of the country and not just RBI if I am right. That means we have more than declared 486B?

 

[Dark1]

Yes and no. Having lots of forex helps us to experience shocks just as now. Our exports and services is going to get affected for this year. We cannot be sure how much imports is going to be impacted. So we need a buffer stock.

Moreover we are trying to create an export driven economy and in that case we need a weaker rupee to make case for our ineffeciencies in our logistics and supply chain.

So if RBI removes excess dollars from Forex where is that " dollar" placed? Forex is the foreign currency kept in all banks of the country and not just RBI if I am right. That means we have more than declared 486B?

As of December 2019, India's foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.[5] with nearly 6% of forex reserves in gold. The FCAs also include investments in US Treasury bonds, bonds of other selected governments and deposits with foreign central and commercial banks"
https://www.google.com/amp/s/www.li...a-hold-400-billion-of-reserves.html?facet=amp
Also,

 

[Smarana Mitra]

This article is filled with foolish assumptions. Firstly, Indian companies who borrow abroad for Indian operations are traitor or foreign agents. No foreign country bank would give loan to Indian operations. If it is Indian operations, loan must also be Indian origin.

So, if genuine Indian firms indeed have taken foreign debt, it is most likely to fund foreign projects like pharmaceuticals exports, internet cable laying etc. Since these are foreign operations, dollar appreciating will not affect them at all.

in times of crises people start buying USDs, even Canadian dollar lost more than 20% in last month

No. It is the effect of petrodollar which makes dollar the currency of the world and hence the deficit is evened out. Also, India is taking 4% fiscal deficit of its GDP which is higher than 2% deficit of US GDP. So, the net result is that Indian rupee will depreciate.

According to the world bank for 2018:
https://wits.worldbank.org/countrysnapshot/en/IND/textview

• The total value of exports (FOB) is US$ 322,292 million.
• The total value of imports (CIF) is US$ 617,946 million.

That's a $295 billion trade deficit. Subtract the 70B in remittances... Thats still a $225 billion trade deficit. Over the last few years....Exports and investments are both down in India......how does the forex reserve keep climbing??

Even if Indian government is not taking foreign dominated loans...Indian corporation are.....so foreign loans are a bigger percentage of your forex than you realize.

India has service surplus of 80 billion dollars. Moreover, I don't think India has deficit of close to 300 billion dollars in goods trade. That is a bit too high as India hasn't been importing highly recently.

Secondly, India doesn't have huge debt abroad. Most of the debt are short term ones which are well hedged against.

Indian foreign exchange reserves have touched record 486 b usd . Cant understand why RBI is deliberately letting the rupee devalue. We are not a predominantly export economy that cheaper exports are our mainstay. RBI keeps on buying the dollars from the market and strengthening the dollar.
Anyone has a logical reason ?

We need to keep our manufacturing stable. Reducing imports by substituting imports with local goods is the key to maintain sustainable economy. India imports many of the good which are fully substitutable and hence can be substituted is given right stimulus. Oil prices are down and hence the problem with trade will not arise

 

[Arulmozhi Varman]

This article is filled with foolish assumptions. Firstly, Indian companies who borrow abroad for Indian operations are traitor or foreign agents. No foreign country bank would give loan to Indian operations. If it is Indian operations, loan must also be Indian origin.

So, if genuine Indian firms indeed have taken foreign debt, it is most likely to fund foreign projects like pharmaceuticals exports, internet cable laying etc. Since these are foreign operations, dollar appreciating will not affect them at all.


No. It is the effect of petrodollar which makes dollar the currency of the world and hence the deficit is evened out. Also, India is taking 4% fiscal deficit of its GDP which is higher than 2% deficit of US GDP. So, the net result is that Indian rupee will depreciate.


India has service surplus of 80 billion dollars. Moreover, I don't think India has deficit of close to 300 billion dollars in goods trade. That is a bit too high as India hasn't been importing highly recently.

Secondly, India doesn't have huge debt abroad. Most of the debt are short term ones which are well hedged against.



We need to keep our manufacturing stable. Reducing imports by substituting imports with local goods is the key to maintain sustainable economy. India imports many of the good which are fully substitutable and hence can be substituted is given right stimulus. Oil prices are down and hence the problem with trade will not arise

So let Indian banks loose more money? Businessmen in cahoots with policitians have got loans left, right and centre without accountability not only in public sector banks and also in private sector too. Even the IBC has led to recovery of only 23% of total liabilities liquidated by the tribunal. But something is better than nothing, the thing is banks aren't even getting their principals back.

Indian banks should start giving loans to foreign enterprises seeing they will have more success recoverinf loans through arbitration. Foreign banks have successfully got such money from Indian companies through arbitration. However I disagree all Indian companies should be funded by Indian banks.