Several textile exporting companies located in the cities like Coimbatore, Tirupur and Karur have recently used the foreign exchange derivatives as a tool to bring down their cost of borrowing. The companies have recently opted for cross currency swaps by using the tool, however, the industry sources are not quite clear about the fact about how many of them have made losses due to the dollar depreciating against all currencies, including Swiss francs and Japanese yen. The sources close to the textile exporting companies have informed that the companies losses on account of forex derivatives are not likely to come to surface unless they chose to book losses or set a short-term maturity term for their derivative contract.
According to the top officials of the companies, they have gone for the forex derivatives only for saving on their interest cost, namely to avail themselves of a reduced interest rate on their rupee term loan. The officials said that they want to do so by converting the forex derivatives into foreign currency loan and most of their currency swaps have been structured to suit this limited requirement only. The sources said that there is not much of in-house or local expertise available to these companies in order to choose newer financial products like derivatives and that is why, the textile and garment companies preferred to go by their bankers guidance before they sketched their contracts.
While commenting on the issue, the President of Tirupur Exporters Association, Mr. A. Sakthivel said that he did not find any incident that involves the export houses in Tirupur region. He said that the volume of forex borrowing under this route is not likely to be big enough and he felt that the exporters, who had opted for the window would have settled for restructuring the contract in time, even in low volume cases. The industry sources added that the disclosure about the adverse financial implications, whether real or notional, on account of currency swap losses for these companies is going to depend largely on timing of the maturity of the derivatives contract.
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| Posted : 3/28/2008 |
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