MUMBAI, November 7: The inching up of the six-monthly forwards in the foreign exchange market is forcing corporates to shelve their external commercial borrowing (ECB) plans. They are now turning to domestic funding options.

Forwards which gained by 100 basis points over the last three days to touch the 7.4 per cent mark has forced corporates to reconsider their funding options. "Most of the corporates are putting their ECB plans on the backburner. Some of the proposals are back to the boardrooms for reconsideration," accordign to ABN Amro Bank senior manager (corporate banking) Ravindra Kumar. With offshore markets in a turmoil, the cost of borrowing through this route has also gone up. "A corporate borrowing right now will be able to raise funds at 75-80 basis points above London Inter-bank Offered Rate (Libor). Add to this, the forward cover has gone up to 7 per cent so that actual cost works out to be 13.50-14 per cent for a 7-year loan", Kumar said.

The busy season credit policy which ushered in a an easy interest rate regime has seen cost of domestic debt going down to as low as 12.25 per cent for a 7-year paper. Grasim, a company which was looking to borrow overseas funded its requirements through a domestic float at a low rate of 12.25 per cent for a 7-year paper.

"It's just a matter of time before ECBs become attractive once again", Kumar said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.