Local firms put int’l funding in backburner: Domestic borrowing cheaper
Sri Lankan companies vying for overseas funding have halted their plans owing to high interest rate costs, industry source said.
“When we borrow from international funding lines, the Central Bank (CB) has to step in to ‘cover’ the exchange rate risk. This cost is now at 5 per cent, (which is high) and we have to pay the CB this exchange interest rate swap cost,” an industry source told the Business Times.
Emirates NBD, the largest banking group in the Middle East in terms of assets which sealed a deal for US$ 50 million syndicated loan recently with People’s Leasing and Finance Plc (PLC), has met with about 10 firms in a similar attempt to lend money but local corporates aren’t too keen, the source said.
“They met with Commercial Bank, HNB, Seylan, Melsta Regal (Aitken Spence), etc,” the source told the Business Times. He added they are looking to lend medium to long term loans. He said borrowing locally has become cheaper for them. Emirates NDB has agreed to extend long term funds for there corporates, but they have refused due to this reason, according to this source.
These loans are granted by a group of lenders and is structured, arranged and managed by one or a number of commercial banks or investment banks known as arrangers. The arrangers (such as Emirates NDB) provide the investment-banking part of raising investor funding for an in want of capital.
“It doesn’t make sense for us to borrow from abroad, as the swap arrangement with the CB goes beyond cost,” the source said, adding that they are in talks with the CB to reduce this. CB sources said that reducing this cost is under discussion, but raising money locally is encouraged as of late by the regulator.
Analysts say that the likes of Emirates NBD will be more frequent this year as they have exhausted their traditional markets such as Europe. “Also the Asian firms will borrow cash at the high rates they quote as they need the money,” an analyst said.