MUMBAI: Switzerland is fast becoming the fundraising hub for Indian companies, looking to borrow from Europe’s new money reserve. Cheap interest rates and lower currency hedging costs are prompting domestic firms to turn to the cash-rich financial institutions of the European country, famous for its bank secrecy laws.
In the past year or so, six Indian companies, including
, SBI, Exim Bank and Rural Electrification Corp borrowed in Swiss francs and investment banks said more were on hold.
“In terms of overall lending rates too, the Swiss market is cheaper than traditional markets. Hedging costs are lower when borrowing in Swiss francs,” said Sunil Agarwal, Head of Institutional Client Group, Deutsche Bank India.
Top-rated Indian companies have managed to take on debt at just under 9% (including hedging costs) in Switzerland, compared to the 11.5-12% interest rates that local lenders charge companies for rupee loans. By issuing convertibles, domestic companies can reduce their borrowing rates to 5.5%.
Union Bank was the first to raise 160 million Swiss francs in 2011. SBI and Exim Bank raised 325 million Swiss francs and 175 million Swiss francs, respectively, from Swiss investors last year. State-owned electricity finance company Rural Electrification Corp raised 200 million Swiss francs in February 2012, while IDBI issued Swiss franc-denominated bonds in March this year to pocket funds valued at 110 million Swiss francs.
The bankers said that comparatively lower hedging costs for foreign companies raising funds from Switzerland due to the lower volatility of its currency are an added incentive. Bankers said the cost of hedging the Swiss franc was about 10-15% lower than the US dollar.
French, Italians Shy Away
“At the swap level, borrowing in the Swiss market would be around 10 to 20 basis points cheaper compared to the US market. The Swiss market is suitable for small, short-term issues,” Agarwal said. Another reason local businesses are turning to the Swiss market to borrow is that other major European lenders, including major French and Italian banks, are refraining from lending outside of their country following the crisis. the debt of the euro zone.
Although Japan is a cheaper market to borrow at around 2%, investment bankers have said investors’ demand for an “Indian government” guarantee to fund Indian companies is a hindrance.
Swiss investors, on the other hand, are less concerned about lending to Indian companies, investment bankers said. “Despite a ‘BBB-‘ sovereign credit rating, higher yields and a decent track record of most Indian debt companies encourage Swiss investors to invest in Indian corporate bonds,” said Brijesh Koshal, Managing Director – investment bank, Daiwa Capital Markets.
“Swiss investors are also comfortable investing in Indian bonds. They like India’s growth story,” said Sunil Agarwal of Deutsche Bank.