Morgan Stanley - ECB/FCCBs Hit New High in March 2007

Morgan Stanley in their report on Inflows,

ECB/FCCBs at US$5.1bn in March 2007: External Commercial Borrowing (ECB)/Foreign Currency Convertible Bonds (FCCB) hit a new high of US$5.1bn
in Mar-07. This compares with US$3.2bn in February and US$1.3bn in January. In March, almost the entire amount was in the form of ECBs (US$4.8bn), while in
February, a large part of the borrowing was in the form of FCCBs (US$1.9bn).

Mukesh Ambani group companies, ADAE Group, Bharti Airtel and Jaiprakash Group were top borrowers: In March 2007, a bulk of the borrowing (53% of total) was accounted for by a few main players such as Mukesh Ambani-led companies – Reliance
Ports & Terminals (US$0.5bn) and Reliance Utilities Ltd (US$0.4bn); Anil Dhirubhai Ambani Enterprises (ADAE) group companies – Reliance Telecom Ltd (US$0.6bn)
and Reliance Communications Infrastructure Ltd (US$0.6bn); Bharti Airtel Ltd. (US$0.3bn); and Jaiprakash Associates Ltd. (US$0.3bn)

ECB/FCCB aggregated at US$25.4bn in F2007 (12 months ending March 2007): This compared with US$17.1bn in F2006, a growth of 48%YoY. This was well above the internal cap of US$22bn fixed by the government for F2007. Breaking down, borrowing via ECB route aggregated to US$20bn in F2007, while those through the FCCB route totaled US$5.2bn (compared with US$12bn and US$5.1bn, respectively,
in F2006).

Policymakers’ concern justified: We think this data justifies policymakers’ concern on capital inflows in the past few months. If this intensity of flows is maintained in
the upcoming period, policymakers may choose to reduce the overall cap on ECB/FCCBs and/or impose selective sectoral caps on such borrowing.