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India Inc goes on a debt-retiring spree

B G Shirsat

The Indian corporate sector is in debt restructuring mode, retiring high cost loans to reap benefits from the declining interest rate regime. A study by the Business Standard Research Bureau showed that 218 companies in the private corporate sector retired secured and unsecured borrowings of Rs 64.62 billion during the financial year 2000-01.

During 2000-01, these firms repaid secured loans of Rs 54.26 billion and unsecured loans of Rs 10.36 billion, with most of the repayment being of bank loans. The corporates repaid Rs 45.89 billion in lieu of bank loans, accounting for 71.02 per cent of the total repayment of loans. They also paid off Rs 10.12 billion in loans from the financial institutions. Instead of relying on financial intermediaries, corporates are now directly raising funds in the market. During the year, these firms raised fresh resources of Rs 16 billion through debentures.

Analysts said this restructuring of the debt portfolio is a natural fallout of falling interest rates, especially when corporates are leaving no stone unturned to cut production costs. "Obviously, interest costs are the first target," an analyst with a primary dealer firm said.

The trend extends all across the spectrum from small corporates to big conglomerates, loss-making firms to profit making ones. Profit making companies like Reliance Industries, Grasim, Tisco and Hindustan Lever have queued up to repay their loans side by side with loss making companies like Hindustan Motors, Shaw Wallace and Garden Silk. Companies, which have reached the end of their scheduled expansion programmes Reliance Petroleum, Tata Steel, Indo Gulf Corporation too have aggressively retired debt. And obviously, companies like Raymond, which have sold off some of their units and businesses, retired more than a proportionate portion of their debt.

Reliance Petroleum, which went into commercial production last year, reduced its debt by Rs 17.16 billion in 2000-01. During the year, the company refinanced high cost rupee debt of Rs 38.90 billion to take advantage of the declining interest rate environment. It also refinanced Rs 6.04 worth of foreign currency loans and repaid long-term loans of IDBI worth Rs 9.61 billion.

With the restructuring of loans, its debt burden was reduced by Rs 24.62 billion. Reliance Industries reduced its debt burden by Rs 13.84 billion. During the year, Reliance refinanced Rs 8.80 billion of foreign currency syndicated loans, bought back Rs 7.35 billion worth offshore bonds and exercised call options on domestic debt amounting to Rs 20.89 billion.

Grasim Industries, the Aditya Vikram Birla group company, reduced its debt profile by Rs 4.97 billion in 2000-01. The company reduced bank loans by Rs 2.01 billion, repaid debentures and long-term loans aggregating Rs 4.27 billion and raised low interest bearing debentures worth Rs 1.80 billion.

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