Indian companies will see their debts mature in March 2014, which is highly concerning given the $32 billion it is set at. The rupee is under a lot of pressure to perform in just the right way since any changes to foreign exchange rates could be negative to the debt situation these companies are in. The rupee is weak and costs for Indian based companies are expensive. The weak rupee could increase the debt levels even more if the rupee continues its slide into weak territory.
Foreign Exchange Rates Worrying Moody States
The USD/Rupee exchange rate is 15% below what it was at the end of March. Moody, the ratings company behind economic ratings, states if the companies’ debts increase because of adverse foreign exchange rates trouble will increase. The rating agency will expect the interest costs to increase and for many companies to have trouble paying or at least losing their current financial cushion. There is one caveat that might save it all- the companies seeing their debts come to maturity are also the ones with the most access to funds. The top companies are four oil and gas corporations like Reliance Industries, Bharat Petroleum, and Indian oil. These four companies account for $13.4 billion of the debt that will hit maturity in March 2014.
Oil and gas companies will retain access to funding both in house and internationally because of their status and size. The other companies with foreign currency debt will not be as lucky since they will see higher costs in terms of credit and may be unable to refinance should foreign exchange rates react in an unfavourable manner.
Some of these companies include Tata Steel, IOC, and Tata Power Company. India is certainly on a path of pressure with limited cash flows, which is worrying to the government and traders.
Foreign Exchange Rates and Investor Fear
The Rupee is one of the currencies most troubling to investors. They hesitate to get in on a USD/Rupee or other currency pairing with the Rupee because of past issues. It is one of the currencies that have been scammed in the past. While the government is working to ensure this does not happen again, it has left some investors very wary even in India.
There is still a big push to make the rupee more appealing to the market as a whole, but with the above negative worries and pressure on foreign exchange rates it does not make an ideal setting. The only option is to hope more investors take an interest in the Rupee for increased value over it losing value. To a degree the media will be used to talk up the Rupee. The government may also have to interfere in the forex market to keep the Rupee from falling further. If Moody is right then investors will probably not help the rates remain or increase in favour of India. Investors are, after all, in the market to make the most money possible through pip changes.