Indian policy makers may make it easier for companies to tap foreign funding, as a prolonged cash squeeze makes it tough for firms to borrow at home.
Investors are speculating about potential steps finance minister Nirmala Sitharaman could unveil when she presents the nation’s budget on February 1. These measures may include freeing up firms to borrow at higher rates and offering tax breaks to global funds.
“The government will need to relax local rules to make it easier for Indian companies to raise debt overseas and tide over the funding crunch in the onshore market,” said Raj Kothari, London-based head of trading at Jay Capital Ltd. “At the same time, they need to ensure that the borrowers tapping offshore markets abide with stricter corporate governance so as to avoid further defaults.”
A prolonged crisis in India’s shadow bank sector and a pile of bad loans at traditional lenders is making it expensive for Indian companies, other than the best-rated firms, to access funding. The government has tried a series of measures to spur domestic credit, including providing so-called credit enhancement and allowing tiny firms to restructure debt.
Indian firms face a record $92 billion of bonds maturing in 2020. Here are some steps Sitharaman may consider to spur foreign borrowing:
She could raise the cap of 450 basis points above Libor, which limits overall foreign debt costs for Indian companies
Sitharaman could waive the withholding tax foreign investors need to pay on holdings of rupee-denominated debt sold by Indian companies abroad.