Govt to leverage public sector firms to mop-up funds from abroad

Public sector financial institutions including PFC and IRFC are being asked to swiftly raise money from abroad this year to shore up the foreign currency reserves. The money will be used for back-to-back lending to the infrastructure sector and so the government expects will be considerably cheaper than the rates which it might have to pay for a plain vanilla bond issue abroad.

The measures will form part of the set of steps the government will roll out soon to finance the current account deficit. The companies are expected to primarily tap the Japanese markets as the yields there are low. The government expects the companies between them can raise more than $10 billion from abroad. The papers will be possibly denominated in yen,which means the investors will be safe against the exchange fluctuations against the rupee. The money raised will come to RBI as welcome addition to its forex reserves while the Centre will provide immediate rupee loans to the companies against those reserves,to invest in India.

This means the companies will not be able to park the money abroad as they might like to do.

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Analysts said since India was on the lowest notch of investment grade ratings any such papers will have to carry a high interest rate that would make the papers costly for the government. Public sector companies including banks,however,enjoy a finer pricing for their infra-linked papers. Since the borrowings are back to back the rates could be even more attractive.

Sajjid Chinoy,chief India economist at JP Morgan said as long as such papers did not cannibalise the demand for government papers by foreign institutions it would be an interesting plan to implement.