Re depreciation to impact infrastructure borrowings,hit power sector hard

Re depreciation to impact infrastructure borrowings,hit power sector hard

Close to 15 per cent of the total borrowings made to build infrastructure.

Close to 15 per cent of the total borrowings made to build infrastructure in the country is set to be impacted with the falling rupee,which touched a new low of Rs 62 to a dollar today.

“Around 15 per cent of the borrowings of infrastructure companies have been in dollar terms and that would obviously be impacted,” said Sanjay Sethi,head of the infrastructure group at Kotak Investment Banking.

In an indication that further depreciation in the currency would hurt investment plans,Anil Sardana,managing director,Tata Power said,“If the rupee slide continues we will have to go back to the drawing board and rethink about our investments.” Sardana was speaking to reporters on the sidelines of the company’s 94th Annual General Meeting in Mumbai.

The borrowings of infrastructure sector in India is in the range of Rs 5,53,000 crore from the banking sector,as per latest RBI data. Loans to the infrastructure sector constitutes around 33 per cent of the total borrowings by these banks,the data shows. This includes the refinancing of external commercial borrowings.


Within infrastructure,industry analysts predict the power sector will be the hardest hit with the fall of rupee as companies in this sector have been the most aggressive to source foreign loans.

“A lot of equipment installed in power plants are imported and their costs will immediately increase. This will ultimately increase the capital expenditure in the sector,” said Sethi. The equipment to be installed in the plants are usually imported from China and South Korea.

Not only the capital expenditure,but also the cost of power is set to increase.

“Around 20 per cent of the demand of coal required for power plants are met through imports. This cost will suddenly increase and power utilities will be left with no option but to pass on the increase to consumers,” said Arvind Mahajan,head of energy and infrastructure at KPMG,a global advisory firm.

The airport sector will not be impacted much since expenditure there is largely rupee financed. “No large airport construction is happening in the country,but the airlines would be impacted badly,as the cost of jet fuel is dependent on the dollar,” said Mahajan.

An airline source said around 50 per cent of costs are impacted due to the fall in value of rupee. “Apart from the jet fuel,lease rentals for aircraft,airport fees abroad and maintenance repair overhaul costs of aircraft,normally done abroad,are all dollar denominated,” the source said.