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Corporate push to debt surge

New Delhi, Dec. 29: Heavy overseas borrowings by Indian companies have pushed up the country’s external debt to $136.52 billion in September 2006 from $126.39 billion in March 2006.

This was an increase of 21 per cent in six months, or $5.61 billion. Finance ministry officials put this down to “a borrowing spree abroad” by companies to fund their expansion and acquisition plans at home and abroad. The figures were released today by the ministry.

B.D. Narang, former chairman of the Oriental Bank of Commerce, said higher borrowings prove Indian companies have come of age globally and it was not a cause for alarm.

Foreign banks now feel that the companies were strong enough to repay the huge sums by efficiently organising their operations, he added.

Finance ministry officials said during this period, bilateral and rupee debt fell marginally, indicating the extent to which borrowings by companies had distended debts.

Indian companies have announced 147 foreign deals this year compared with 45 in the last fiscal. The valuation, including Tatas’ proposal to take over UK’s Corus, is over $20 billion compared with $5 billion in 2005-06.

Narang, who has handled many overseas acquisitions as Oriental Bank chief, said, “I see this trend continuing and in fact gathering steam over the next two to three years.”

Overseas commercial borrowings during this period went up to $32.46 billion from $26.84 billion.

“By the end of this fiscal, the figure could well go up to $42-45 billion,” said Amitava Bannerjee, a senior analyst with a Hong Kong-based fund.

Short-term debt also grew at a fast pace from $8.69 billion in March 2006 to $10.58 billion in September 2006 or by nearly 22 per cent.

This was due to the boom in the stock markets where the FIIs made heavy purchases that made the sensex scale unprecedented heights.

In the meantime, the finance ministry has convened a meeting of the RBI and Sebi on regulating the corporate debt market.

There is no consensus on who will regulate the market. The ministry feels being securities, the market will be under Sebi’s purview.

The RBI can regulate the repo and reverse repo trade in the market. Sources said the ministry would tell the regulators to determine their domain of regulations on the basis of “mutual understanding.”

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