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External Commercial Borrowings (ECB)

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The Presentations summarizes the regulatory framework relating to borrowing by Indian Companies outside India.

The Presentations summarizes the regulatory framework relating to borrowing by Indian Companies outside India.

Published in: Economy & Finance, Business

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  • 1. External Commercial Borrowing Borrowing from outside India
  • 2. ECB Includes: Loan from Foreign Securitized Supplier‟s Collaborator/Bank Loans Buyer‟s credit Foreign instruments Credit Equity Holder Minimum Average Maturity must be three years
  • 3. Policy Permitted by the government as a source of finance for Corporate to expand their existing capacity & for fresh investment An annual cap or ceiling on access to ECB Greater priority for projects in infrastructure, power, oil,telecom, railways, roads, & bridges, ports, Industrial parks, urban infrastructure & export sectors
  • 4. Aspects to be focused under ECB Eligible Borrowers End Use not Eligible permitted lenders End Use Limits for permitted raising ECB Average All-in Cost Maturity ceiling Period
  • 5. Two ways of raising ECB
  • 6. Eligible Borrowers Automatic Route NGOs engaged in micro finance Corporate in Corporate other activities service sector than hotel , (Relationship of viz. Hotel, Units in Special hospital and at least 3 years Hospital, and Economic Zone software up to with scheduled software up to (SEZ) USD 750 bank and USD 200 million granted „fit and million proper‟ status AD Bank)Financial Intermediaries such as Banks, Financial Institutions, Housing Finance Companies,NBFCs, Trusts, Individuals and Non Profit making organizations are not eligible to raise ECB
  • 7. Recognized Lenders Suppliers of Financial equipments institutions Foreign such as IFC, collaborators ADB, CDC etc. Foreign equity International Holders (other capital markets than OCBs) IndividualsInternational Recognized and Overseas banks Lenders organizations
  • 8. Limits for raising ECB Corporate in service sector other than hotel , hospital and service up to USD 750 million Corporate in service sector like Hotel, Hospital, and software up to USD 200 million NGO engaged in micro finance activity and Micro Finance Institutions can raise ECB up to USD 10 million or its equivalent ECB up to USD 20 million can have call/ put option
  • 9. Average maturity period Minimum Average Limits Maturity periodUp to USD 20 million or its equivalent 3 years Above USD 20 million or 5 years its equivalent
  • 10. All-in- cost ceilings Average Maturity All-in-cost Ceiling over Period 6 month LIBOR3 years and up to 5 350 basis points yearsMore than five years 500 basis points
  • 11. End Use PermittedImport of Capital GoodsExecuting new projectsModernization / Expansion of existing unitsIn infrastructure sector such as Railways, Roads etc.Payment of spectrum allocationImplementation of new projects or modernization /expansion of existingproduction units in Real Sector, Industrial sector, Infrastructure sector
  • 12. End Use PermittedFirst and second stage acquisition of shares in the disinvestmentprocess under the Government‟s disinvestment programme of PSUshares.Overseas direct investment in Joint Ventures (JV)/ Wholly OwnedSubsidiaries (WOS).Interest During Construction (IDC) for Indian companies which arein the infrastructure sector,.For lending to self-help group or for micro-credit or for bona fidemicro finance activity including capacity building by NGOs engagedin micro finance activities.
  • 13. Eligible Borrowers Approval Route Corporate Banks and which have SEZ ECB with financial violated the lending by minimum institutions developers extant ECBEXIM Bank average which had for providing policy and for specific maturity of 5 participated infrastructur are under purposes years by in the textile e facilities investigation NBFC or steel sector within SEZ by the RBI restructuring and/or ED
  • 14. Eligible Borrowers Approval RouteInfrastructur Corporate in Foreign e Finance Corporate in service sector Currency Multi state Companies service sector other than Convertible Cooperative availing like Hotel, hotel , Bonds societiesECB for on- Hospital, hospital and (FCCBs) by engaged in lending to and software service above Housing manufacturi the up to above USD 750 Finance ng activitiesinfrastructur 200 million million Companies e sector
  • 15. Eligible Borrowers Approval Route Special Purpose Vehicles or any other entity ECB from ECB from a notified by the indirect equity group company Case falling Reserve Bank, holder provided provided both outside theset up to finance the indirect the borrower and purview of the infrastructure equity holding by the foreign automatic routecompanies/projec the lender in the lender are limits and ts exclusively, Indian Company subsidiaries of maturity period.will be treated as is at least 51%. the same parent financial institutions.
  • 16. Recognized lendersSame as in Automatic Route Foreign equity HoldersMinimum holding required: Paid up equity held directly bythe foreign equity lender is 25% but ECB liability-equity ratio exceeds 4:1 and up to 7:1
  • 17. All-in- cost ceilings Average Maturity All-in-cost Ceiling over Period 6 month LIBOR3 years and up to 5 350 basis points yearsMore than five years 500 basis points
  • 18. End Use PermittedThe first stage acquisition of shares in the disinvestment process and also in themandatory second stage offer to the public under the Government‟s disinvestmentprogramme of PSU shares.Bridge Finance- Indian Companies which are in the infrastructure sector arepermitted to import capital goods by availing of short term credit(includingbuyer‟s /supplier‟s credit) in the nature of „bridge finance‟.Repayment of Rupee loans availed from domestic banking systemImplementation of new projects or modernization /expansion of existingproduction units in Real Sector, Industrial Sector, Infrastructure Sector
  • 19. End Use PermittedThe payment by eligible borrowers in the Telecom sector, for spectrumallocation may, initially be met out of Rupee resources by the successfulbidders, to be refinanced with a long-term ECB.Investment for import of capital goodsOverseas direct investment in Joint Ventures (JV)/ Wholly OwnedSubsidiaries (WOS) subject to the existing guidelines on Indian DirectInvestment in JV/ WOS abroad.Interest During Construction (IDC) for Indian companies which are in theinfrastructure sector, subject to IDC being capitalized and forming part ofthe project cost.
  • 20. End Use not Permitted For on-lending or investment in capital market or acquiring a company (or a part for working capital,for real estate thereof) in India by a general corporatesector, corporate purpose and repayment except Infrastructure of existing Rupee loans. Finance Companies (IFCs), banks and financial institutions eligible
  • 21. Other Important pointsIssuance of guarantee, standby letter of credit, letter of undertaking or letter ofcomfort by banks/ financial institutions/ NBFCs are not permitted.Borrowers are permitted to keep ECB proceeds abroad or remit these to Indiapending utilization for permissible end uses.ECB proceeds kept abroad can be invested in deposit/ certificate of deposits/other products offered by banks, Treasury Bills of 1 year, deposits with overseasbranches of Indian Banks - rated not less than AA(-) by S&P/ Fitch/ Moody
  • 22. Other Important pointsPrepayment of ECB up to USD 500 million is allowed by AD Banks withoutapproval of RBI subject to compliance with minimum average maturitystipulation.Existing ECB can be refinanced by raising a fresh ECB - outstanding maturityof the existing ECB is maintained and fresh ECB is raised at a lower cost.Borrower to submit an application in form ECB through designated AD bank tothe chief General Manager-in-charge, Foreign Exchange Department, ReserveBank of India, Central Office, External Commercial Borrowings Divisions,Mumbai- 400 001, along with necessary documents.
  • 23. Conversion of ECB into Equity Government (FIPB) The foreign equity approval for foreign holding after such equity participation conversion of debt into has been obtained by equity is within the the company sectoral cap Pricing of shares is as The activity of the per the pricing company is covered guidelines issued underunder the Automatic Conversion of FEMA, 1999 in the Route for Foreign ECB into equity case of listed/ unlisted Direct Investment is permitted companies. subject to the following conditions:
  • 24. Reporting of ECBConversion of ECB may be reported to Reserve Bank of India by Filling of Form FC GPR tothe Reserve Bank and Form ECB 2 to DSIM within seven days from the close of month towhich it relates. Two types of conversation: Full Conversation of Partial Conversation of Outstanding ECB into equity Outstanding ECB into equity Clear indication on the top of Clear indication on the top of the form ECB 2 of words “ECB the form ECB 2 of words “ECB wholly converted to equity” partially converted to equity”
  • 25. AD banks desiring to crystallize their foreign exchange liability arising out ofCrystallization guarantees provided of ECB for ECB raised by corporate in India into Rupees, may make an application to the RBI.
  • 26. ProcedureSubmit Form 83 in duplicate, certified by the CompanySecretary or Chartered Accountant. One copy isforwarded to AD and other copies to DSIM, RBI. Obtain Loan request number (LRN) Draw-down the loan after obtaining LRN Borrowers are required to submit Form ECB 2 Return by designated AD to DSIM, RBI on monthly basis.