New ECB norms limit refinancing options: Fitch

The recent Reserve Bank guidelines simplifying external commercial borrowings will "curb" refinancing options for companies, says a report.

But the system-wide impact of this will be limited, as there were masala bonds and foreign-currency debt issuances recently with a minimum average maturity of 10 years, global rating agency Fitch said Friday.

The report said the RBI's intention behind the new rules is to rationalise multiple regulations and make it easier for corporates to borrow from overseas markets.

Eligible borrowers will now be allowed to raise up to USD 750 million per financial year without approval, with previous sector limits removed, as per the notification issued Tuesday evening.

Some commentators have suggested the changes are part of the RBI efforts to encourage capital inflows and ease pressure on the rupee, the agency said but pointed out that the decision to merge regulatory categories for types of ECBs will create refinancing complications.

"Under the previous framework, corporates could refinance rupee-denominated debt with track II ECB (forex debt with minimum average maturities of 10 years) or masala bonds (offshore rupee-denominated bonds). This will no longer be permitted," it explained.

The report further noted that refinancing of rupee debt with other types of offshore debt was already restricted, which means rupee-denominated debt can now only be refinanced in the local market, unless the lender is a foreign equity holder in the borrowing company.

Domestic corporates had not, in general, been able to take advantage of offshore refinancing options, so most are unlikely to be significantly affected, the agency said.

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Only the largest and strongest issuers have been able to tap the masala bond market since regulatory constraints were introduced in mid-2017, including a price cap over government yields, it said.

Refinancing of local-currency debt through track II ECB issuance was an attractive option for some corporates, particularly as domestic credit conditions are tight amid ongoing problems in the local financial sector, it said.

Some companies in the renewable energy and infrastructure sectors were aiming to refinance their rupee debt with longer-dated forex debt, it said.