FinanceAsia speaks to Hindalco's joint president and head of treasury, Kumar Jhala and finds out about the non-ferrous metal powerhouse's borrowing needs:
What is Hindalco's general borrowing strategy?
We borrow as and when we need funds. We fix an internal rate at which want to borrow - whether in rupees or in foreign currency. Once we fix the rate we talk to the banks and say 'This is our rate, can you do the transaction'? We normally prefer bilateral transactions rather than syndicated loans.
In all humbleness and modesty I can say we have got it right most of the time on issuing when the rates are right.
How much does Hindalco normally borrow per year?
It's normally according to our requirement and last year we borrowed something like Rs500 crore, which is almost $100 million.
This year will be similar?
There are two important things happening. One is the government's disinvestment programme and we don't know the timing, but we are bidding. If we are the successful bidder we may have to borrow.
The other thing is that Hindalco's copper business has also migrated to Hindalco now and the size of the company has ballooned. We now have a capital expenditure requirement for copper, and before it was only for aluminium.
So depending on the opportunities, we may borrow more than we did last year.
Can you describe the trend in your interest expenses?
In the past two years in succession we have shaved off almost 250-300bp. We intend to do the same this year. In fact, today I purchased our own paper of almost half a billion rupees. So we keep lowering our cost of borrowing and buying back the more expensive paper. Both operations, taken together, lead to extremely fine costing.
What is your cost of borrowing at the moment?
I think I should be able to borrow at 4.5-4.75%.
Has that trend bottomed or do you think interest rates will go down further?
What is happening in India is there is no major credit off-take. The only borrowers here are the government or a few corporates. Hindalco is a triple A rated and among the best rated. And we have never flooded the market with our paper and so have maintained an appetite for our paper. We could raise money without much difficulty.
So you think your borrowing cost will go further and further down?
I think our borrowing cost will go down another 25-50bp.
In recent weeks you have been issuing a lot of offshore in dollars and swapping it back into rupees. Is that proving a lot more attractive than using the domestic bond market?
It gives me an advantage of almost 50-75bp.
What is driving that arbitrage? Is it because of the strengthening rupee?
That is one thing, but as I said there is a tremendous amount of appetite for Hindalco's paper. We hadn't accessed the dollar market for more than three years.
We have been using the domestic market previously.
Do you foresee doing most of the rest of your borrowing this year in the domestic market or in dollars?
It will be a combination.
How much have you borrowed in the international markets in the last three or four weeks?
It's about $50 million.