Borrowing costs for leading companies soar to more than 10%

Borrowing costs for leading companies soar to more than 10%A tight funding environment engineered by the Reserve bank of India (RBI) to support weak rupee has pushed borrowing costs for big businesses to more than 10 per cent.

Anil Ambani-led Reliance Capital Ltd. recently sold three-month commercial paper at a rate of 10.35 per cent, which was significantly up from 8.95 per cent that the company paid for receiving one-year funds in June this year.

Fresh figures revealed by Bloomberg show that three-month commercial paper yields jumped 249 basis points (bps) in July to hit a sixteen-month high of 10.91 per cent on Tuesday this week. In the United States, similar rates were recorded at just 0.23 per cent.

In May, the RBI hiked two of its interest rates and slashed banks' access to money as part of its efforts to arrest the Indian currency's fall against the U. S. dollar. But, the move also led to surge in yields that, in turn, led to 96 per cent hike in corporate bond sales in July.

Suyash Choudhary, head of fixed income at IDFC Asset Management Co., said, "This is time when a weak credit would become worse as the problem is of funding. A tight funding environment for an elongated period of time can potentially further weaken the already-slow growth trajectory."

Six-month commercial paper yields have surged 2.27 percentage points to 11 per cent this month.

Indian companies' credit quality has slipped to its five-year low as the companies are struggling to resist economic slowdown, hiked funding costs and increasing debt.




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