External Commercial Borrowing 2007 Vs 2008

ASSOCHAM FINANCIAL PULSE STUDY

Indian Business Houses and External Commercial Borrowing Borrowing March 2009

Prepared by

Nusrat Ahmad Assocham Research Bureau Email: [email protected]

CONTENTS

1. INTRODUCTION

2. STATUS

3. INDIAN BUSINESS HOUSES/GROUPS RAISING CAPITAL (ECB ROUTE)
Top business houses in 2007
Top business houses in 2008
Comparative analysis of total amount of ECBs raised by Business houses in 2007vs 2008

Annexure

INTRODUCTION External Commercial Borrowings (ECBs) are a key component of India’s overall external debt which includes external assistance, buyer’s credit, supplier’s credit, NRI deposits, short-term credit and Rupee debt. In developing nations like India, business houses raise capital through ECBs when the cost of domestic borrowing is higher than that of international funding. Raising ECBs by Indian residents directly adds to India’s external debt and foreign exchange exposure and therefore, the same is highly regulated by the Reserve Bank of India (RBI). DEFINITION ECBs include commercial bank loans, buyers’ credit, suppliers’ credit, securitised instruments such as floating rate notes and fixed rate bonds etc., credit from official export, credit agencies and commercial borrowing from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB, IFC, CDC etc. It also considers loans from Foreign Equity Holders and Financial leases and Foreign Currency Convertible Bonds. DATA SOURCE The Reserve Bank of India maintains monthly data on External Commercial Borrowing (ECB). TIME PERIOD For comparing and analyzing the parameters, ASSOCHAM Research Bureau (ARB) have complied the monthly data on External Commercial Borrowing (ECB) for two calendar years vis-à-vis 2007 and 2008 respectively. PARAMETERS Capital raised by Indian Companies through the route of external commercial borrowing is analyzed and compared for the calendar year 2007 and 2008: 1) Total number of companies in each year 2) Total amount borrowed by the Indian companies in each year 3) Business House/Groups that borrowed capital (Companies were clubbed under their business group/house) 4) Purpose wise amount raised by business groups.

STATUS 1) Total amount of funds raised through ECBs 2007 vs 2008 The total funds raised by Indian companies through the route of External Commercial Borrowing (ECB) witness a dip by 48.9 per cent from USD 33.32 billion in the calendar year 2007 to USD 17.02 billion in the year 2008. 2) Number of companies raising funds via ECB route 2007 vs 2008 The number of companies raising capital through ECB route has also witness a decline by 45.24 per cent, from 756 companies during the year 2007 to 414 companies in the corresponding calendar year. 3) Capital borrowings for various purposes 2007 vs 2008 During the year 2007, Indian companies raised funds via ECB route for 113 various purposes, however in the preceding calendar year capital was raised for 26 types of purposes, recording a sharp plunge of 76.99 per cent.

INDIAN BUSINESS HOUSES/GROUPS RAISING CAPITAL (ECB ROUTE)

Top business houses in 2007…. Ambani brothers notched top positions respectively as the biggest overseas borrower through external commercial borrowing’s, with Mukesh Ambani controlled Reliance Industries carving out the maximum pie of 14.38 per cent, Anil Dhirubhai Ambani Group (ADAG) followed with a share of 10.50 per cent in the total amount raised by the Indian companies during the year 2007.

Reliance Industries and ADAG raised total funds worth USD 4.79 billion and USD 3.50 billion respectively in 2007.

The third largest amount through ECBs was raised by Tata group worth USD 2.02 billion and contributing a share of 6.06 per cent in the total amount.

Essar group’s amount of total funds stood at USD 1.12 billion, carving a share of 3.37 per cent, as fourth biggest overseas borrower through ECBs.

Jindal Group was the fifth largest borrower raising total ECB amounting USD 990.00 million with a share of 2.97 per cent.

The amounts borrowed by Jaypee Group and Aditya Birla group were USD 688.00 million and USD 420.06 million respectively. The companies share in total ECBs stood at 2.06 per cent and 1.26 per cent respectively.

Top business houses in 2008…. The analysis of the study revealed that during the calendar year 2008, among the various Indian business houses, the highest amount of funds via ECBs was once again raised by Ambani brothers.

However, in the year 2008, top position was carved by ADAG, raising total amount of ECBs worth USD 1.90 billion, with a share of 11.14 per cent.

Reliance Industries at the second position, overseas borrowing via ECBs stood at USD 783.09 million, with a share of 4.60 per cent in the total amount raised during 2008. The third largest amount through ECBs was raised by Essar group worth USD 777.00 million, carving out a share of 4.56 per cent in the total amount.

Tata group as fourth biggest overseas borrower via ECBs raised funds worth USD 580.65 million, with a share of 3.41 per cent.

Adani group was the fifth largest borrower raising fund amounting USD 519.80 million, carving a share of 3.05 per cent.

The amount borrowed from overseas through ECBs by GMR group and Aditya Birla group stood at USD 350.00 million and USD 343.94 million respectively. The companies share in total ECBs were 2.06 per cent and 2.02 per cent respectively.

2007 vs 2008 Assocham Research Bureau have identified 15 major Indian business houses that have borrowed funds through ECBs, out of which 9 business groups recorded decline in amount of capital raised in 2008 over 2007 in the range of 94 per cent to 18 per cent. Jindal Group of companies registered maximum decline by 94.82 per cent in the amount of capital raised through ECBs. The group borrowed USD 51.26 million in 2008 as against USD 990.00 million in the year 2007.

During 2007, the group’s contribution in total amount of capital raised via ECBs stood at 2.97 per cent; the main purpose of raising the fund was for modernization, project and import of capital goods. However, in the preceding calendar year it contributed a meager share of 0.30 per cent and funds were borrowed mainly to import capital goods. At the second position, one of the India's largest Engineering and Construction Conglomerate, Kirloskar Group witness a sharp dip of 90.47 per cent in the amount raised through ECBs worth USD 5.50 million in 2008 as against USD 57.70 million in the year 2007. The group’s contribution in total amount of overseas borrowing via ECBs stood at a low of 0.17 per cent in 2007 with main purpose for modernization and import of capital goods.

However, in the preceding calendar year its

contribution was 0.03 per cent in the total funds borrowed, mainly for rupee expenditure and import of capital goods. The Yash Birla Group, at the third position recorded a decline in the total amount raised via ECB by 89.80 per cent. During the calendar year 2007, the

group borrowed USD 50.00 million, which reduced to as low as USD 5.10 million in preceding calendar year. The conglomerate’s contribution in the total amount borrowed through ECB route accounts to be merely 0.50 per cent and 0.03 per cent in 2007 & 2008 respectively. However, the main purpose of the group in 2007 was to raise capital for overseas acquisition and in 2008 it was for import of capital goods. The diversified group of manufacturing companies, Reliance Industries Ltd. at the 4th position, also witnessed a major plunge in the total funds borrowed from overseas via ECB route by 83.65 per cent from USD 4790.00 million in 2007 to USD 783.09 million in 2008.

The group contributed the highest share of 14.38 per cent during 2007 in total amount of overseas borrowing via ECBs with main purpose of utilizing the amount towards modernization and project. However, in the preceding calendar year it contributed the second highest amount of 4.60 per cent in the total funds borrowed, that was mainly used for import of capital goods.

The fifth place was occupied by the Tata group, which witnessed a dip of 71.27 per cent in funds raised through ECBs, from USD 2020.77 million in 2007 to USD 580.65 million in 2008.

The multinational conglomerate contributed a share of 6.06 per cent in total capital raised during 2007, utilizing the amount majorly towards modernization, overseas acquisition and import of capital goods purposes. However, in 2008, its share in overall amount stood merely at 3.41 per cent, with funds being diverted for the purpose of import of capital goods, rupee expenditure and overseas acquisition.

The other business houses that witnessed plunge in the capital borrowed via ECBs in 2008 as against 2007 include JK group (-48.79 per cent), Anil Dhirubhai Ambani Group (ADAG) (-45.82 per cent), Essar Group (-30.81 per cent) and Aditya Birla Group (-18.12 per cent). The study noted that during the calendar year 2007, the major business houses raised capital through foreign borrowing via ECBs with the major share of the amount utilized in the purpose of: •

Modernization

•

Project activity

•

Overseas acquisition and

•

Import of capital goods

However, the major share of the total amount in 2008, shifted towards the purpose of: •

Import of capital goods

•

Rupee Expenditure

•

Refinancing of old loans

ANNEXURE Overseas Borrow ings via ECBs -Group w ise (2007 vs 2008)

80.00

75.00 57.70

Amount (in USD million)

60.00

50.00

45.00

38.00 25.00

30.00 15.00

9.76

5.50

5.10

5.00

7.29

0.00 JK Group

Yash Birla Group Kirloskar Group

RPG Group

ABG Series1

Business Groups

Overseas Borrowing via ECBs- Group wise (2007 vs 2008) Amount (USD million)

500.00

Series2

519.80

420.06

400.00

350.00

343.94

298.69

300.00 200.00 200.00 100.00

154.23

129.00

115.00

35.00

0.00 L&T

Hinduja Group

Aditya Birla Group Business Group

GMR

Adani Group Series1

Series2

Amount (USD Million)

Overseas Borrowing via ECB- Group wise (2007 vs 2008) 4800.00 4400.00 4000.00 3600.00 3200.00 2800.00 2400.00 2000.00 1600.00 1200.00 800.00 400.00 0.00

4790.00 3500.00

2020.77

580.65

1896.00 1123.01 777.00

990.00

783.09

51.26 Tata Group

Essar group

Reliance Industries Bus ine s s Group

Note: Series 1 represent calendar year 2007 Series 2 represent calendar year 2008

ADAG

Jindal Group Series1

Series2

Business Group Jindal Group Kirloskar Group Yash Birla Group Reliance Industries Tata Group JK Group ADAG Essar group Aditya Birla Group Hinduja Group Adani Group ABG GMR RPG Group L&T Source: RBI, ASSOCHAM Research Bureau

Growth rate in Amount of borowing 2008 vs 2007 -94.82 -90.47 -89.80 -83.65 -71.27 -48.79 -45.82 -30.81 -18.12 73.91 74.03 110.51 171.32 242.92 340.66