4. ECB
• A source of funds for financing expansion of existing
capacity and for fresh investment out of territory
• External Commercial Borrowings (ECB) refer to
commercial loans availed from non-resident lenders
5. ECB includes:
• commercial bank loans
• buyer’s credit
• supplier’s credit
• securitized instruments such as floating rate notes
• fixed rate bonds
• credit from official export credit agencies,
6. ECB includes:
• Commercial borrowings from the private sector
• Window of multilateral financial institutions such as
IFC, ADB, AFIC, CDC etc.
• Investment by Foreign Institutional Investors (FIIs)
in dedicated debt funds
7. Why ECB
• Scarcity of fund in domestic market
• Cheaper than domestic debts
8. Regulation
• Clause (d) of sub-section 3 of section 6 of the Foreign
Exchange Management Act, 1999 (FEMA)
• With section 6 of Notification No. FEMA 3 / 2000-
RB dated May 3, 2000 (amended)
9. 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, consistent
with prudent debt management
• Greater priority for projects in the infrastructure,
Power, oil, telecom, railways, Roads & Bridges,
Ports, Industrial parks, urban Infrastructure &
export sector.
11. Automatic Route
• ECB for investment in real sector -industrial sector,
especially infrastructure sector-in India, are under
Automatic Route, i.e. do not require RBI permission
• Government approval , In case of doubt as regards
eligibility to access
• Automatic Route, applicants may take recourse to the
Approval Route.
12. Eligible Borrowers
• Corporate (registered under the Companies Act except
financial intermediaries)
• Units in Special Economic Zones (SEZ) are allowed
to raise ECB for their own requirement.
• Individuals, Trusts and Non-Profit making
organizations are not eligible to raise ECB.
13. Recognized Lenders
• International banks
• International capital markets
• Multilateral financial institutions (IFC, ADB, CDC)
• Export credit agencies
• Suppliers of equipment
• Foreign collaborators
• Foreign equity holders
14. Amount & Maturity
Maximum ECB which can be raised is $ 500 m or
equivalent excluding hotel, hospital and software
during a financial year.
1. ECB up to $ 20 m or equivalent in a financial year
with minimum average maturity of three years .
2. ECB above $ 20 m and up to USD 500 million or
equivalent with a minimum average maturity of
five years.
15. Utilization
Import of capital goods (as classified by DGFT in the
Foreign Trade Policy), by new or existing production
units, in real sector - industrial sector SME and
infrastructure sector
• Power, Telecommunication, Railways, road including
bridges, sea port and airport, industrial parks, urban
infrastructure (water supply, sanitation and sewage
projects)
• Overseas direct investment in Joint Ventures
(JV)/Wholly Owned Subsidiaries (WOS)
16. Restricted Areas
• Utilization of ECB is not permitted for on-lending or
investment in capital market or acquiring a company
(or a part thereof) in India by a corporate
• Utilization of ECB is not permitted in real estate
• Utilization of ECB is not permitted for working
capital, general corporate purpose and repayment of
existing Rupee loans.
17. Parking of ECB
• Deposits or Certificate of Deposit or other products
offered by banks
• Deposits with overseas branch of an authorized
dealer in India
• Treasury bills and other monetary instruments of one
year maturity
Rating of above institution – AA (-) by
S&P/Fitch IBCA or Aa3 by Moody’s
The funds should be invested in such a way that the
investments can be liquidated as and when funds are
required by the borrower in India.
18. Prepayment
• Prepayment of ECB up to $ 500 m is allowed
without prior approval of RBI
• Minimum average maturity period is applicable to the
loan.
19. Refinancing
• The fresh ECB is raised at a lower cost than the
existing
• Maturity of the original ECB is maintained.
20. Procedure
• No prior approval of RBI is required
• The borrower must obtain a Loan Registration
Number (LRN) from RBI before drawing down the
ECB.
• The procedure for obtaining LRN is detailed in para
II (i) (b). of FEMA
22. Eligible Borrowers
• FI’s dealing exclusively with infrastructure or export
finance such as IDFC, IL&FS, Power Finance
Corporation, Power Trading Corporation, IRCON
and EXIM Bank are considered on a case by case
basis.
• Banks & FI’s which had participated in the textile or
steel sector restructuring package as approved by the
Government are permitted to the extent of their
investment in the package and assessment by Reserve
Bank based on prudential norms. Any ECB availed
for this purpose so far will be deducted from their
entitlement.
23. Eligible Borrowers
• ECB with minimum average maturity of 5 years by
NBFCs from multilateral financial institutions reputable
regional financial institutions, official export credit
agencies and international banks to finance import of
infrastructure equipment for leasing to infrastructure
projects.
• Corporate in services sector viz. hotels, hospitals and
software companies can avail ECB for import of capital
goods
24. Eligible Borrowers
• Special Purpose Vehicles, or any other entity notified
by the Reserve Bank, set up to finance infrastructure
companies / projects exclusively, will be treated as
Financial Institutions and ECB by such entities will
be considered under the Approval Route.
• Multi-State Co-operative Societies engaged in
manufacturing activity satisfying the following
criteria
i) the Co-operative Society is financially solvent and
ii) the Co-operative Society submits its up-to-date
audited balance sheet.
• Corporate engaged in industrial sector and
infrastructure sector in India can avail ECB for
Rupee expenditure for permissible end-uses.
25. Recognized Lenders
• ECB’s can be raise from international sources such as
(i) international banks
(ii) international capital markets
(iii) multilateral financial institutions (such as IFC,
ADB, CDC
(iv) export credit agencies
(v) suppliers' of equipment
(vi) foreign collaborators
(vii)Foreign equity holders
26. Amount & Maturity
• Maximum ECB which can be raised is $ 500 m or
equivalent during a financial year.
• ECB up to $ 20 m or equivalent in a financial year
with minimum average maturity of three years .
• ECB above $ 20 m and up to USD 500 million or
equivalent with a minimum average maturity of
five years.
27. Amount & Maturity
Apart from above automatic route norms:
• Additional amount of $ 250 m with average maturity of
more than 10 years under the approval route
• Corporate in infrastructure sector can avail ECB up to $
100 m
• Corporate in industrial sector can avail ECB up to
$50 m
• Corporates in the services sector i.e. hotels, hospitals
and software companies can avail ECB up to $100 m
28. Restricted Areas
• On-lending or investment in capital market or
acquiring a company
• Real estate
• For working capital, general corporate purpose and
repayment of existing Rupee loans.
29. Parking of ECB
• Deposits or Certificate of Deposit or other products
offered by banks
• Deposits with overseas branch of an authorized dealer
in India
• Treasury bills and other monetary instruments of one
year maturity
Rating of above institution – AA (-) by
S&P/Fitch IBCA or Aa3 by Moody’s
The funds should be invested in such a way that the
investments can be liquidated as and when funds are
required by the borrower in India.
30. Prepayment
• Prepayment of ECB up to $ 500 m is allowed
without prior approval of RBI
• Pre-payment of ECB for amounts exceeding $ 500 m
would be considered by the Reserve Bank under the
Approval Route.
(Minimum average maturity period is applicable to
the loan.)
31. Refinancing
• The fresh ECB is raised at a lower cost than the
existing
• Maturity of the original ECB is maintained.
32. Procedure
• No prior approval of RBI is required
• The borrower must obtain a Loan Registration
Number (LRN) from RBI before drawing down the
ECB.
• The procedure for obtaining LRN is detailed in para
II (i) (b). of FEMA
33. All-in-cost ceilings
Expenses paid in foreign Currency
• Interest
• Other fees & expenses
Expenses paid in Indian Currency
• Commitment fee
• Pre-payment fee
(The payment of withholding tax in Indian Rupees is
excluded for calculating the all-in-cost.)
34. Expense Ceiling
Average Maturity All-in-cost Ceiling
Period over 6 month LIBOR*
Three years and up to five 350basis points
years
More than five years 500basis points
35. Empowered Committee
A committee established to accept the
proposal scrutiny it and forward
application to RBI for permission for
Approval route ECB
36. Conversion of ECB into
Equity
• The activity of the company is covered under the
Automatic Route for Foreign Direct Investment or
Government approval for foreign equity participation
has been obtained by the company,
• The foreign equity holding after such conversion of
debt into equity is within the sectoral cap, if any,
• Pricing of shares is as per SEBI and FEMA 1999
regulations in the case of listed/unlisted companies as
the case may be.
37. $ 5 Million Scheme
AD banks are permitted to approve elongation of
repayment period for loans raised under the
$ 5 m Scheme, provided
• The overseas lender has given letter for such
reschedulement without any additional cost.
• Such approval with existing and revised repayment
schedule along with the Loan Key/Loan Registration
Number should be initially communicated to the Chief
General Manager-in-Charge, Foreign Exchange
Department, Reserve Bank of India, Central Office,
ECB Division, Mumbai within seven days of
approval and subsequently in ECB - 2.
38. Application
The complete application should be
submitted by the applicant through
the designated authorized dealer to the
Chief General Manager-In-Charge,
Foreign Exchange Department,
Central Office, ECB Division,
Reserve Bank of India, Mumbai 400
001.
39. Documentation
(i) A copy of offer letter from the overseas
lender/supplier furnishing complete
details of the terms and conditions of
proposed ECB.
(ii) A copy of the import contract,
proforma/commercial invoice/bill of
lading.
41. FCCB
Foreign Currency Convertible Bonds
(FCCB) are debt instruments
issued in a currency different than
the issuer’s domestic currency with
an option to convert them in
common shares of the issuer
company.
42. Features of FCCB
• A debt instrument which can be converted into a
company’s equity shares if the investor chooses to do
so, at a pre-determined strike rate.
• FCCB issues have a ‘Call’ and ‘Put’ option to suit the
structure of the bond, both the options are subject to
RBI guidelines.
• The interest on FCCBs is generally 30% -40% less
than on normal debt paper or foreign currency loans
or ECBs. This translates to cost saving of approx 2-3
percent p.a.
43. Features of FCCB
• FCCB can be secured as well as unsecured. Most of
the FCCB issued by Indian Companies are generally
unsecured.
• FCCB can be converted into Indian Shares or
American Depository Receipts (ADR)
• FCCB are generally listed to improve liquidity,
generally Indian issuer have listed at Singapore Stock
Exchange and in many cases also on Luxembourg
Stock Exchange.
44. Statutory Guideline & RBI
Regulation
FCCB can be raised by two ways :
i. Automatic Route
ii. Approval Route
45. Automatic Route
The automatic route is available to real
sector i.e. Industrial sector, specially
infrastructure sector-in India
46. Approval Route
• Financial Institutions dealing exclusively with
infrastructure or export finance such as IDFC,
IL&FS, Power Finance Corporation, Power Trading
Corporation, IRCON and EXIM Bank
• Banks and financial institutions which had
participated in the textile or steel sector restructuring
package as approved by the Government are also
permitted to the extent of their investment in the
package and assessment by RBI based on prudential
norms. Any ECB availed for this purpose so far are
deducted from their entitlement.
47. Regulations
• Minimum Average Maturity shall be 3 years for
borrowing up to $ 20 m and 5 years in case it exceeds
$ 20 m
• The maximum amount of ECB to be raised in a
financial year can be $ 500 m
48. Utilization
(a) Investment purposes like Import of Capital goods,
New projects, modernization/expansion programs in
Industrial and infrastructure sector
(b) Overseas direct investment in JV or wholly owned
subsidiaries abroad
(c) RBI guidelines provide that funds received through
FCCB should be parked abroad till the actual
requirement arises in India.
49. Ministry of Finance
Guideline for Listed
Companies
• Eligibility of Issuer – Only Companies who are
allowed to raise capital from Indian market
• Eligibility of Subscriber – Overseas Corporate Bodies
(OCBs) who are eligible to invest in India through the
portfolio route and entities allowed to buy, sell or
deal in securities by SEBI
50. Pricing of FCCB
• The pricing should be made at a price not less than
the higher of the following two averages:
(i) The average of the weekly high and low of the closing
prices of the related shares quoted on the stock
exchange during the six months preceding the relevant
date;
(ii) The average of the weekly high and low of the
closing prices of the related shares quoted on a stock
exchange during the two weeks preceding the relevant
date.
51. Buy Back of FCCB
• The buyback value of the FCCB shall be at a
minimum discount of 25% on the book value
• The funds used for the buyback shall be out of
internal accruals, to be evidenced by Statutory
Auditor and designated AD Category – I bank's
certificate
• The total amount of buyback shall not exceed USD
50 million of the redemption value, per company.
52. Issuance of FCCB By Indian
Companies
• FCCBs can be issued by Indian companies in the
overseas market in accordance with Scheme for Issue
of FCCB & Ordinary Shares (Through Depository
Receipt Mechanism) Scheme, 1993.
• The FCCB issue needs to conform to External
Commercial Borrowing guidelines, issued by RBI vide
Notification No. FEMA 3/2000-RB dated May 3,
2000 as amended from time to time.
53. Suzlon Energy Limited
• May 16, 2007 launched and priced a Foreign
Currency Convertible Bonds (FCCBs) issuance
for an amount of USD 300 million.
• The FCCBs, which have a maturity of 5 years
and 1 day, are convertible at a conversion
price of Rs 1,800 per share.
• The FCCBs is listed on the Singapore
Exchange Securities Trading Ltd.
• Deutsche Bank is the Sole Bookrunner to the
transaction; and Yes Bank Ltd. advisor to
the Company.
