$27.3-bn of maturing corporate debt in FY21 not a concern: BofA Securities

Given the fragile nature of the economy and the markets due to the global gloom triggered by the Covid-19 pandemic, good news is literally hard to come by.

But, Indranil Sen Gupta and Aastha Gudwani, both India economists with BofA Securities, point to some relief at the onset of FY21. The duo, in a note, said that they are not concerned about the funding of India’s corporate foreign exchange (forex) debt repayments in 2020. And their projection carries some weight as they claim that they were bang on with their views during the forex crises of 2008, 2013, and 2018.

While BofA Securities’ forex strategists foresee the exchange rate at ₹76 a dollar in June 2020, the duo’s comfort comes from the fact that the corporate forex debt maturities amount to a reasonable $27.3 billion in FY21.

Also, the maturity profile is reasonably spread out in FY21, especially given that the falling crude oil prices are helping narrow the current account deficit. And most of the $1 billion-plus maturities are due from ‘blue chips’ and banks that should be able to get a roll-over.

“On balance, we continue to expect the Reserve Bank governor [Shaktikanta] Das’s forex accretion to keep speculative attacks on the Indian rupee at bay,” the dup noted. They are of the view that the central bank will likely try to augment forex flows by incentivising exporters to bring back proceeds, raising the cost of import finance and hiking NRI (non-resident Indian) deposit rates on rupee-denominated non-resident external (NRE) / foreign currency non-repatriable (FCNR) deposits.

As of September 2019, banks’ forex assets stood at about $44 billion, of which about $20 billion was adjusted for forex-denominated FCNR deposits. While these buffers should be able to fund any shortfall, the blue-chip corporate borrowers are better placed to bargain. “These issuers should be able to get roll-overs--a la 2009, 2013 and 2018---given the spurt in global forex liquidity,” the duo noted.

The current lower crude oil prices are also a boon for the economy. The duo is of the view that the RBI should be able to buy $45 billion worth of forex on the back of lower oil prices as well the liberalisation of non-resident investment limits in the debt market through the fully accessible route (FAR). “This is higher than corporate forex debt maturity,” they said.

If things go awry, the central bank’s forex accretion could come to the rescue. The economists expect the RBI to use FY20’s $44.5-billion forex reserve accretion to fend off speculative attacks on the rupee. “We estimate that it can freely sell up to $30 billion to stabilise the rupee,” the duo added.

“The very same risk-off that dampens crude oil prices usually also pulls down the BSE Sensex and cuts down FPI (foreign portfolio investment) flows,” the duo highlighted. The silver lining, however, is that they continue to expect $7 billion worth of FPI flows in FY21 compared to an outflow of $6.5 billion in FY20 on the back of the RBI’s debt market liberalisation.

While the global economy has a recession at its doorstep, India has some positives to tick on its international exposure that should certainly give relief to the central bank and also the stakeholders who stand to be affected due to the sharp fluctuations in exchange rates. Especially in testing times that prevail now as the Covid-19 pandemic continues to keep the world on tenterhooks.

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