RIL leads rush to cash in on RBI swap auctions


New Delhi, May 8: The country’s use of currency swaps to ease a cash crunch is helping companies cut hedging costs on overseas borrowings. Firms have joined banks in bidding at the swap auctions conducted by the Reserve Bank of India (RBI) this year, according to two bankers who asked not to be identified citing client confidentiality. Reliance Industries (RIL) and a unit accounted for more than 60% of the $5 billion raised on April 23, according to a person with knowledge of the matter.
A persistent cash shortage due to a crisis in the shadowbanking sector has spurred firms to look offshore for funds, just as the costs of borrowing in dollars decline from a 10-year high as the US Federal Reserve turned dovish. That makes it cheaper for domestic firms to borrow overseas, and then swap it into rupees with the RBI, according to analysts.
“RBI’s window could aid traction for overseas borrowings, which has been missing owing to elevated hedging costs even though global interest rates have softened,” said Soumyajit Niyogi, associate director at India Ratings & Research. Indian companies borrowed $12.2 billion from overseas in March — the most in any month in the past fiscal year — with RIL and its telecom unit raising a combined $2.2 billion, RBI data show. Mukesh Ambani-controlled RIL took part in the auction as it was cheaper swapping its dollars with the RBI than in the market, said the person who asked not to be identified in discussing the company’s finances.
“In the current scenario of improved liquidity conditions for EM borrowers due to the US Fed’s change in stance, issuing offshore debt is cheaper than onshore borrowings for Indian companies,” said Bharat Shettigar, head of Asia ex-China corporate credit research at Standard Chartered Bank.