External commercial borrowing (financial)

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External commercial borrowing (financial)

  1. 1. External Commercial Borrowing (ECB) Rakesh Ramchandran (X-MBA 23)
  2. 2. Borrowing Guidelines 2 Foreign Exchange Management Act (FEMA) Guidelines For Borrowing External Commercial Borrowing (ECB) Foreign Currency Convertible Bonds (FCCBs) Preference Shares Foreign Currency Exchangeable Bonds (FCEB)
  3. 3. External Commercial Borrowing (ECB) 3 ECB is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs (public sector undertakings) Its a source of funds for financing expansion of existing capacity and for fresh investment out of territory
  4. 4. Ways of raising ECB 4 Automatic Route • Does not require RBI approval Approval Route • Approval required from RBI
  5. 5. Automatic Route 5
  6. 6. Borrowers 6 Corporate including hotel, hospital and software sector Infrastructure Finance companies (IFCs) Units in SEZ zones NGO involved in Micro finance
  7. 7. Limits for Raising ECB 7 Category Amount (USD) per unit /per financial year Corporate other than those in service sector (i.e. hotel, hospital and software) Up to 750 M or equivalent Corporate in service sector (ECB not applicable for Land acquisition) Up to 200 M or equivalent NGO engaged in Micro Finance Up to 10 M or equivalent (Forex exposure to be fully hedged)
  8. 8. Approval Route 8
  9. 9. Eligible Borrowers (1) 9 Foreign Investors deleing with Infrastructure and export finance such as EXIM bank Banks and financial institutions which had participated in the textile or steel sector restructuring package as approved by the Government. ECB with minimum average maturity of 5 years by NBFC to finance import of infrastructure equipment for leasing to infrastructure projects. Infrastructure Finance Companies (IFCs) i.e. NBFCs, categorized as IFCs, by RBI (beyond 50% of their owned funds) for on-lending to the infrastructure sector as defined under the ECB policy and subject to compliance of certain stipulations.
  10. 10. Eligible Borrowers (2) 10 Foreign Currency Convertible Bonds (FCCBs) by Housing Finance Companies. Special Purpose Vehicles (SPV) or any other entity notified by the RBI, set up to finance infrastructure companies / projects exclusively. Financially solvent ulti-State Co-operative Societies engaged in manufacturing. SEZ developers for providing infrastructure facilities within SEZ.
  11. 11. Eligible Borrowers (3) 11 Eligible Corporate under automatic route other than in the services sector i.e. hotels, hospitals and software sector can avail of ECB beyond USD 750 million per financial year. Corporate in the service sector for availing ECB beyond USD 200 Mn. per financial year. Cases falling outside the purview of the automatic route limits and maturity indicated, etc.
  12. 12. Limits for Raising ECB 12 Category Amount (USD) per unit /per financial year Corporate other than those in service sector (i.e. hotel, hospital and software) Beyond to 750 M or equivalent Corporate in service sector (ECB not applicable for Land acquisition) Beyond 200 M or equivalent
  13. 13. Lenders and Permitted End Use 13 Automatic & Approval Route Common Factors
  14. 14. Recognized Lenders 14 International banks International capital markets Multilateral financial institution (such as IFC, ADB, DCD etc)/ Regional Financial Institution and Government owned Financial Institution Export Credit Agencies Supplier of Equipment Foreign Collaborators Foreign Equity Holders
  15. 15. End use permitted (1) 15 Import of Capital goods Executing new projects Modernization/Expansion of existing units Infrastructure projects for PWD works Payment for Natural resources (like spectrum allocation)
  16. 16. End use permitted (2) 16 First and second stage acquisition of shares in disinvestment process under the Government’s disinvestment program of PSU shares Overseas direct investment in Joint Ventures (JV)/ Wholly Owned Subsidiary (WOS) Interest during Construction (IDC) for Indian companies in Infrastructure sector Lending to NGO engaged in Micro finance activities
  17. 17. Average Maturity on Amount Borrowed 17 Limits Minimum Average Maturity Period Up to USD 20 M or its equivalent 3 years Above USD 20 M and up to 750 M or equivalent 5 years
  18. 18. 19

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