The company has to repay around Rs 170 crore which includes the loss on account of currency depreciation over the past couple of years. Although the company had taken the exchange risk cover, ``the exchange loss, as part of the total cost of borrowing, is lower than warranted by the current exchange rates'', said Vinay Kaul, finance director, Ranbaxy Laboratories.

Out of the Rs 200 crore loan borrowed from IDBI, Rs 100 crore is renewal of a loan already borrowed in 1997 and the balance Rs 100 crore is by way of fresh disbursal.

``In our case, the company had taken an appropriate cover against its $ 40 million liability quite some time back, and the current value of rupee, therefore does not reflect the cost on account of the rupee depreciation,'' said Vinay Kaul, replying to a faxed questionnaire.

``In view of the depreciation suffered by the rupee against the US dollar, the overall cost (interest cost and depreciation of rupee cost) of borrowed rupee funds including that from IDBI would be lower than the aggregate cost of foreign currency borrowing,'' said Kaul.

Ranbaxy Laboratories is not the only company who is in a hurry to pay back the overseas borrowings and replace then with domestic borrowings. In the recent past, companies like Reliance Industries and SPIC have replaced their foreign currency loans with domestic loans. An uncertainty over the rupee seems to have forced these corporates to go for a cover. The cost of borrowing overseas along with the risk cover would result in a much higher cost than the domestic cost of borrowing.

The south-based fertiliser major SPIC is also planning to retire its $ 120 million (Rs 515 crore) floating rate notes as part of its debt restructuring exercise to reduce the cost of borrowing. The company plans to buy-back FRNs by raising rupee loans from the domestic market. Reliance Industries recently raised $ 40 million seven-year foreign currency loan with a simultaneous and proportional buy-back of its 8.125 per cent 10 year $ 150 million yankee bonds.

On a networth of Rs 1,286.4 crore, Ranbaxy's is well levereged with a secured and unsecured borrowing of Rs 503.4 crore as on March 1998. The net interest cost for Ranbaxy has been very low and stood at Rs 1.5 crore only.

It may be recalled that Ranbaxy Limited last year decided to shelve its $ 80 million external commercial borrowing programme due to the softening of interest rates in the domestic market and the increasing uncertainty in the international money market.

Ranbaxy's plan of dropping the ECB borrowing cames close on the heels of RIL, IPCL and Aditya Birla Group of companies' decision to call off or downsize their international borrowing plans. Aditya Birla Group ofcopanies, Grasim Industries and Indo-gulf fertilisers announced its plans to jettison its overseas borrowing programme. While Grasim industries was planning a $60 million ECB programme, Indo-Gulf had firmed up a $40 million ECB. Both the companies will now mop up funds from the domestic market.

Interest costs will go up:

Although the replacement of forex loan by rupee loan makes a lot of sense for many corporates, the same may not hold true for Ranbaxy. Ranbaxy has appoximately 50 per cent of income coming from exports. Since exports act as a natural hedge against rupee depreciation, the decision to go IN for rupee loans could simply be a matter of not having the required cash in hand. In any case, going in an for an ECB now will only be at high interest rates, and therefore there is little alternative to rupee-funding. Interest costs will, however, go up.