Key facts
- Indian power and renewable energy companies are seeking foreign currency loans.
- The RBI's new dollar-rupee swap facility has reduced hedging costs for ECBs.
- REC plans to raise $500 million via a five-year external commercial borrowing.
- PFC is seeking bids for a foreign currency term loan.
- Ireda is also considering overseas lending options.
- The RBI swap facility is available for fresh borrowings with maturities of three years and above until December 31, 2026.
Indian power and renewable energy financing companies are actively exploring opportunities to borrow from international markets, spurred by the Reserve Bank of India's recent introduction of a dollar-rupee swap facility. This new mechanism has effectively lowered hedging costs, making foreign currency loans more appealing and cost-effective compared to domestic borrowing.
State-run REC is planning to raise $500 million through a five-year external commercial borrowing (ECB). Power Finance Corporation (PFC) has invited bids for a foreign currency term loan, with submissions due by June 22. The Indian Renewable Energy Development Agency (Ireda) is also assessing the feasibility of pursuing overseas lending aggressively.
Several companies are reportedly in discussions with banks and lenders to secure funds and gain a first-mover advantage. The RBI's swap window, available at a fixed cost of 1.5% per annum, is open for fresh borrowings of three years and above until December 31, 2026. This initiative aims to support public sector undertakings and banks in mobilising foreign currency borrowings.
REC's proposed borrowing is anticipated to be priced around 100 basis points over the five-year US Treasury yield, which is approximately 4.3%. Factoring in the RBI's 1.5% hedging cost, REC's all-in rupee cost is estimated to be around 6.8%, potentially offering savings of about 50 basis points compared to domestic borrowing costs of 7.4% for similar tenures. Bankers noted that this new framework makes offshore funding more attractive, with REC's borrowing expected to be 50-60 basis points cheaper than comparable domestic bond funding. In comparison, REC recently priced a three-year domestic bond at 7.38%.