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Sunanda K. Chavan
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Examples from Indian Market - October 8th, 2010

Examples from Indian Market
1) SBI-HUDCO enter into yen swap deal
STATE Bank of India has entered into a long-term rupee- Japanese yen swap with Housing and Urban Development Corporation (HUDCO).

According to a press release, HUDCO has swapped its foreign currency liability of 2.89 billions for equivalent rupee resources with SBI for a tenor of 10 years. Under the arrangement, HUDCO will deposit its yen with SBI on the day of transaction and SBI in return will pay the equivalent rupee resources to HUDCO.

According to officials, the swap will be done at the prevailing exchange rate on the day of the transaction. According to officials, HUDCO will use the rupee resources for lending to their projects in India. The overseas branches of SBI in Japan to fund their own assets will use yen. As per the swap agreement, SBI would provide the long-term hedge to HUDCO for a period of 10 years to cover the exchange risk of the foreign liability.

As a result of this, the swap will neutralize both the exchange rate risk and interest rate risk of HUDCO on yen loan by converting the yen flows into risk neutral fixed interest rate rupee flows for the company. At the end of 10 years, HUDCO will take back the yen by giving the rupee equivalent to SBI.

Earlier SBI had struck a rupee-dollar swap of sizable transaction with ICICI. At present, the bank is considering similar deals with companies, which do not have international presence to manage the foreign currency risk effectively, said an official.

The bank is actively involved in developing the derivative market in India by facilitating the use of hedging instruments such as currency swaps. This has been possible after the permission was granted by the Reserve Bank of India to enable the corporate to obtain suitable hedge for their exposures arising out of their foreign currency loans.

Example 2) : Nalco contains loss on yen loan via swap deal
NATIONAL Aluminum Co (Nalco) has hedged its 20-billion loan by swapping 50 per cent of the principal into US dollars when the yen was at 144.15 against the dollar.

Last week the yen tumbled to 147 to a dollar. The yen bullet loan is due for redemption on September 1998. By covering its exposure, Nalco has insulated itself against possible foreign exchange fluctuations.

The benefits arising from sharp depreciation of the yen against the US dollar was partially nullified by the simultaneous depreciation of rupee. ``Depreciation of 1 to Rs 1.30 to neutralizes the effect on the loan,
In other words, there will be no impact on the bottomline of Nalco as far as the fluctuation is within this range mentioned above.

Further, Nalco has parked about 10 billion and $16 million in the exchange earners foreign currency (EEFC) account abroad. The EEFC corpus would more than mitigate the Forex risk and its impact on the loan.
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Rose Marry
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Re: Examples from Indian Market - April 18th, 2016

Quote:
Originally Posted by sunandaC View Post
Examples from Indian Market
1) SBI-HUDCO enter into yen swap deal
STATE Bank of India has entered into a long-term rupee- Japanese yen swap with Housing and Urban Development Corporation (HUDCO).

According to a press release, HUDCO has swapped its foreign currency liability of 2.89 billions for equivalent rupee resources with SBI for a tenor of 10 years. Under the arrangement, HUDCO will deposit its yen with SBI on the day of transaction and SBI in return will pay the equivalent rupee resources to HUDCO.

According to officials, the swap will be done at the prevailing exchange rate on the day of the transaction. According to officials, HUDCO will use the rupee resources for lending to their projects in India. The overseas branches of SBI in Japan to fund their own assets will use yen. As per the swap agreement, SBI would provide the long-term hedge to HUDCO for a period of 10 years to cover the exchange risk of the foreign liability.

As a result of this, the swap will neutralize both the exchange rate risk and interest rate risk of HUDCO on yen loan by converting the yen flows into risk neutral fixed interest rate rupee flows for the company. At the end of 10 years, HUDCO will take back the yen by giving the rupee equivalent to SBI.

Earlier SBI had struck a rupee-dollar swap of sizable transaction with ICICI. At present, the bank is considering similar deals with companies, which do not have international presence to manage the foreign currency risk effectively, said an official.

The bank is actively involved in developing the derivative market in India by facilitating the use of hedging instruments such as currency swaps. This has been possible after the permission was granted by the Reserve Bank of India to enable the corporate to obtain suitable hedge for their exposures arising out of their foreign currency loans.

Example 2) : Nalco contains loss on yen loan via swap deal
NATIONAL Aluminum Co (Nalco) has hedged its 20-billion loan by swapping 50 per cent of the principal into US dollars when the yen was at 144.15 against the dollar.

Last week the yen tumbled to 147 to a dollar. The yen bullet loan is due for redemption on September 1998. By covering its exposure, Nalco has insulated itself against possible foreign exchange fluctuations.

The benefits arising from sharp depreciation of the yen against the US dollar was partially nullified by the simultaneous depreciation of rupee. ``Depreciation of 1 to Rs 1.30 to neutralizes the effect on the loan,
In other words, there will be no impact on the bottomline of Nalco as far as the fluctuation is within this range mentioned above.

Further, Nalco has parked about 10 billion and $16 million in the exchange earners foreign currency (EEFC) account abroad. The EEFC corpus would more than mitigate the Forex risk and its impact on the loan.
Hello friend,

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