Swiss Franc gains currency with Indian companies

MUMBAI: Indian firms are looking at borrowing in Swiss francs after a gap of about two years as they look beyond the three major global currencies or G-3 – the US dollar, euro and Japanese yen.

State-owned oil firms are planning to borrow about Rs 7,000 crore in Swiss francs, following the example of Bharat Petroleum Corporation, which has raised about Rs 1,240 crore and Rs 2,446 crore through bond issuances in this currency over the past few weeks.

The oil firms are considering borrowing a billion CHF, people familiar with the matter said, adding that the Swiss franc is among the most stable major currencies as Switzerland defends it against the greenback. “CHF international bond market has emerged as an efficient and alternative source of funding for high quality Indian corporates,” said Randhir Singh, India head-financing, Deutsche Bank.

“This market allows borrowers to diversify investor base at competitive pricing. In 2014, we have witnessed two successful transactions so far,” he said, referring to BPCL and Bharti Airtel International (Netherlands) BV’s issuances.

The hedging cost for Swiss franc bonds is about 8%, which is roughly 30 basis points less than that for the US dollar. Many issuers do not hedge it back to the Indian rupee as they swap it with the US dollar due to higher dollar-based payments. A basis point is one hundredth of a percentage point.

Currently, the swap cost is calculated by adding a spread of about 2.60-2.65% with the six-month LIBOR or the London Interbank Bank Offer Rate. This comes at about 3.50%, which is cheaper than the rate two years ago.

“Only companies with substantial rupee cash flows would have the requirement to hedge CHF raising in the rupee terms,” said Ganeshan Murugaiyan, managing director and head-investment banking at BNP Paribas India.