Rupee Crash, Covid-19 To Make India Inc's Overseas Debt Repayments Costlier

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 several billion dollars of top corporate houses are 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.

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.

According to Bloomberg data, Indian companies will have to repay overseas debt worth $7.5 billion in the June quarter. Air India has $135 million due next month and State Bank of India has to repay $1.2 billion. Among the large companies, RIL has $550 million loan scheduled for repayment next month.

Financial research firm CreditSights warned 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 firm 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.