Unhedged Debt Of $79 Billion Will Be The Rupee's Next Challenge

The percentage of unhedged foreign loans has increased as a result of the RBI’s intervention, which guaranteed the rupee was less unpredictable than its arising-request counterparts and tranquilized businesses into complacency regarding their bone exposure. Still, in recent months, stock exoduses and broad bone strength have caused the currency’s losses to quicken and sent it to a string of record lows.

Highlights –

The Reserve Bank of India reported that the country’s firms had unhedged coastal loans worth $79 billion.
Foreign investors have sold Indian shares worth $29.5 billion, on track to set a record annual outflow this year.
Samiran Chakraborty and Baqar Zaidi, two analysts at Citi, said that “holders of foreign debt are likely to restructure their debt or repay from FX earnings sources.

Companies in India are scrambling to protect their foreign debt against any rupee depreciation that might result in more losses for the already-damaged local currency. According to the most recent data available from the Reserve Bank of India, the nation’s businesses had unhedged coastal loans totaling $79 billion at the end of March, or around 44% of their overall overseas borrowings.

Since the rupee has fallen this time by more than 7 since the first loan, the cost of repaying it has gone significantly.

According to Parul Mittal Sinha, head of India fiscal requests at Standard Chartered Plc in Mumbai, “We’ve noticed increasing effort from corporates to hedge their bone exposure since USD/INR breached over 79.”

A consequence of the RBI’s action

Still, in recent months, stock exoduses and broad bone strength have caused the currency’s losses to quicken and sent it to a string of record lows.

Even though businesses are beginning to increase their hedging levels, the current percentage is still much below the minimum 63 percent advised for times of significant foreign currency volatility.

The rupee hit an all-time low against the dollar on Tuesday and has lost 2.4 percent since then, ranking third among Asian currencies in terms of performance during that time.

According to statistics collated by Bloomberg data since 1999, international investors have sold $29.5 billion worth of Indian shares this year, on pace to set a record yearly outflow.

In a recent exploratory note, Citi economists Samiran Chakraborty and Baqar Zaidi said that “holders of foreign debt are expected to restructure their debt or repay from FX earnings sources.”

The experts noted that Citibank has revised its 12-month prognosis for the rupee downward from its previous projection of 79 to 81 per dollar.

Lower Cost of Funding

One method for hedging international borrowing is to completely stop using bone backing and look for less expensive local alternatives.

One of India’s top green energy firms, Renew Energy Global, recently refinanced $525 million of its bonds with longer-term rupee backing.

Kedar Upadhye, a senior fiscal officer at Renew Power, said in an interview last week that the company’s general approach is to hedge its foreign exchange exposure as and when it becomes necessary to address the risk posed by changing exchange rates and interest rates.