If Reliance has to pay about one percentage point more for short-term money, the bond market could be out of bounds for many lower-rated firms after some time.
Anup Roy reports.
IMAGE: Reliance Chairman Mukhesh D Ambani. Photograph: PTI Photo
At a time when the policy repo rate is at 6% and three-month government treasury bills are trading at 6.15%, India's biggest company, Reliance Industries, raised Rs 1,500 crore (Rs 15 billion) of three-month money on Monday, April 23, at 7.1%.
About the same time last year, Reliance was raising money for two to three months at 6.13% to 6.15%, much closer to the prevailing treasury bill rate.
On Tuesday, April 24, Godrej Industries raised money through three-month commercial paper at 7.12%.
State-owned firms, though, seem to be doing remarkably well.
Chennai Petroleum raised money for two months at 6.59% on April 16 while Indian Oil did the same at 6.55%.
This clearly underlines how much rates have shot up for corporate entities in India.
The size of the issuance matters, but rates have climbed up only recently.
On January 11, Reliance Industries had raised the same amount at 6.38% for commercial paper maturing in 70 days.
Commercial paper matures within a year.
On January 11, the company raised money for two months at only 24 basis points above the prevailing treasury rate.
The steep cost of borrowing by Reliance Industries should be cause for concern for the rest of the Indian corporate sector.
Reliance is rated AAA by all domestic rating agencies, with a short-term rating of A1+.
Both its long-term and short-term ratings are the highest possible.
And yet if Reliance has to shell out about one percentage point more for short-term money, the bond market could be out of bounds after some time for many lower-rated firms altogether, experts say.
The hardening of commodity prices is already making inputs costly for companies, and now with financing cost also going up, it would be very difficult for companies in the coming days, according to Soumyajit Niyogi, associate director at India Ratings and Research.
In its monetary policy report released on April 5, the Reserve Bank of India noted that even as capacity utilisation had improved marginally for Indian companies, their input cost was also rising, but final prices were not rising enough.
