Non-banking finance companies (NBFCs) and home financiers are approaching private equity (PE) funds and overseas debt markets to raise long-term capital because of a liquidity crunch and rising cost of capital in India. Industry watchers say the current situation is opportune for PE funds looking to invest in NBFCs since valuation expectations for the sector as a whole have moderated considerably after the IL&FS crisis. ECBs as a source of funding have become extremely significant right now, considering NBFC-HFCs need to reduce their short-term liabilities. Market has been concerned about asset-liability mismatches (ALM) and ECBs take care of the ALM issues. In a rising interest rate scenario, if the ECB fund-raise is fully hedged then the firm is locked in at that rate for five years, hence hedged against rising rates.

(Live Mint)