Saturday, April 3, 2010

Sri Lanka Piramal Glass goes for dollar loans - Good time ahead for Piramal Glass

Apr 03, 2010 (LBO) - Sri Lankan glass manufacturer, Piramal Glass Ceylon has converted more than 50 percent of its long term rupee debt to dollars loans, reducing finance costs, a senior official said.
"We have recently in the last quarter converted our (rupee) loans to foreign currency loans," Sanjay Tiwari, chief executive of Piramal Glass Ceylon said.

"So 50 percent of our borrowings are foreign currency loans and the balance is in rupee loans which are at very competitive interest rates."

Tiwari said Piramal Glass has long term debt of 2.7 billion rupees taken from a consortium of banks headed by DFCC Bank, a listed commercial bank.

He said 1.5 billion rupees of debt was converted to foreign exchange in November 2009.

Piramal borrows rupees at average weighted deposit rate (now about 7.4 percent) plus 4.0 percent, while it borrows dollars at 6.5 percent, Tiwari said.

Tiwari said Piramal Glass is expected half its interest costs by the move.

The company exports glass bottles in various sizes and colours to high end markets for bottling of various liquors and boutique wines.
Nearly 70 percent of its exports go to India. Other markets include Europe, Australia and South Africa, all top wine-making countries.

Companies that have significant foreign exchange (forex) income prefer taking dollar loans as they can match dollars revenues to loan repayments and also benefit from lower interest rates.

The Sri Lankan rupee is soft 'pegged' against the US dollar, which can give stability for a extended periods of time but can suddenly collapse when monetary policy loosens, unlike a hard peg or currency board where discretionary monetary policy is not allowed.

The currency can also collapse when sudden capital flight is sterilized by the monetary authority, after it tries to defend the peg.

A soft-pegged central bank coupled with a excessively deficit spending government keeps keep domestic currency interest rates at much higher than global levels, encouraging borrowers to seek foreign currency loans.

High domestic interest rates in a soft-pegged country can make exports uncompetitive.

"Because we have increased our exports and we have the capability to service foreign currency loans," Tiwari said. "So we moved our debt from rupee loans to foreign currency loans."

December quarter 2009, the company made a net profit of 28.6 million rupees after incurring an 87 million rupee loss during the same period, 2008.

Piramal Glass Ceylon, a unit of India's Piramal Glass was formerly known as Gujarat Glass.

source - www.lbo.lk

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