External Commercial Borrowings – Is it Further Improving Ease of Doing Business in India

1. External commercial borrowings – is it
further improving ease of doing
business in India?

2. Ease of doing business in India

3. Key changes in the Jan & July-2019 RBI
Notifications on ECB’s
Particulars Pre Jan-2019 Post Jan-2019
No of Tracks 2
(3-5 years & > 10 years)
1
(> 3 years)
ECB Limits Sector Specific Limits <=$ 750 mn per FY
(No Sectorial Limit)
All in Cost
Ceiling
Libor + 300 bps
Libor + 450 bps
Libor + 450 bps
Eligible
Borrower
As Defined in three tracks
(Corporates, NBFC’s, HFC’s
REIt’s & INVI’s)
Expanded to include all entities
eligible to receive foreign direct
investment including Port Trusts,
Units in SEZ, SIDBI and EXIM Bank of
India
Recognized
Lender
International Banks, Capital
Markets, MFI’s, Export Credit
Agencies, Suppliers of
Equipment, Foreign Equity
Holders and other long term
investors
Include any resident of Financial
Action Task Force or International
Organization of Securities Commission
compliant country. Multilateral and
regional FI’s, where India is a member
country

4. ECB’s between FY15 and FY20
31.1
24.4
17.4
26.0
41.1
32.7
0
5
10
15
20
25
30
35
40
45
FY15 FY16 FY17 FY18 FY19 FY20 (9
mths
ended
Dec-19)
Amount in US$ bn
43.6
10.9

5. ECB’s raised by NBFC’s in the last 24 months
400
690
3
823
968
233
1,250
1,600
1,732
685
1,507
246
905
676
77
1,204
761
259
-
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
2,000.00
Amount in US$ mn
NBFC’s have raised US$ 14.02 bn (~Rs.100,000 Cr) over 24 mths

6. ECB’s raised by NBFC’s in the last 24 months
NBFC’s accounted for 30% of the overall ECB in the last 24 mths
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Others NBFC's as a % of Total

7. Reasons for Increase in ECB’s
• Liquidity Crisis hitting India Inc. – Bank Credit growth from an
average 15% falls to single digit…..currently around 9%
• Banks aversion on fresh lending…
• Few takers for stressed NBFC papers in the Domestic Bond
market
• Hard hit NBFC’s largest ECB borrowers – Accounted for nearly
50% of the total ECB borrowing during HI-FY20 (April-Sep-2019)
and 30% of the overall borrowing in the last 24 months
• Low overseas Interest Rates
• 12% reduction in the LIBOR rate over the last 24 months

8. Working
Capital
Debt
Restructuring Startups
Impact of New ECB Regime

9. Key Changes in the July 30 2019 RBI Notification
• Removal of End use Restrictions
• Working Capital / General Corporate Purpose / on Lending
for same purpose
• ECB’s with a minimum average maturity of 10 years
• Repayment of Rupee Term Loans availed for Capex / on
lending for same purpose
• ECB’s with a minimum average maturity of 7 years
• Repayment of Rupee Term Loans availed for Capex only
in Manufacturing / Infra sector under SMAII / NPA.
• Lender Banks can sell through assignment to ECB lenders

10. Key Changes in the July 30 2019 RBI Notification
• Reduced the ECB maturity tenure from 5 years to 3 years for
borrowings above US$ 50 mn
• Removed qualification restrictions by Increasing the Borrowing
Limit to US$ 750 mn per annum under automatic route
• All entities eligible to receive FDI can borrow under the ECB
framework
• Removed the existing sector-wise limits

11. ECB’s - last 10 months – pre and post relaxation
11,790
7,817
8,467 1,075
29,148
Capex Foreign Eq Hold NBFC (Capex) Refinance ECB Total
5,017
2,392
5,261
1,549
1,525
25 15,769
Capex Foreign Eq
Hold
NBFC
(Capex)
Refinance
ECB
Refinance
INR Loans
INR
WC Loans
Total
Pre-July-2019
Post-July-2019

12. • Minimum Average Maturity Period of 10 Years
• Working Capital Loans being short term in nature, there are
limited takers
• Overseas lenders does not have control on the Security –
Cash Flows are not routed through them
• Do not have the infrastructure / resources to review /
monitor the security / cash flows on a daily / monthly basis
• All in cost ceiling of Libor + 450 bps – the risk premium does
not compensate enough for the above costs
Why ECB’s for Working Capital purpose have had
limited Success

13. An ECB is an ECB …………
Difficult for it to act as a substitute for a
Stress Fund / ARC / Venture Fund
under the current Structure

14. Why ECB’s for Debt Restructuring / OTS /
Assignments have not succeeded
• ECB’s not permitted to refinance / assign Working Capital Loans
• Hardly any case where only one facility is in default
• All in cost ceiling of Libor + 450 bps
• Risk premium for an Investment grade and non Investment
grade asset cannot be same
• Average Maturity Period of 7 years for Term Loans and 10 years
for Working Capital Loans
• Debt Restructuring / Refinance in most of the NPA cases
would involve a higher repayment horizon
• Return Expectation for a stressed Asset in $ terms is 16-18% (i.e
20%-22% after hedging cost)
• Indian / Foreign Funds / ARC’s operating in India having
sufficient liquidity offering funding at 20-22% in rupee terms

15. ECB facility for Startups
Eligibility An entity recognized as a Startup by the Central Government
Maturity Minimum average maturity period will be 3 years.
Forms The borrowing can be in form of loans or non-convertible,
optionally convertible or partially convertible preference shares
Amount USD 3 million
All-in-cost Shall be mutually agreed between the borrower and the lender
End uses For any expenditure in connection with the business of the
borrower
Conversion into
equity
Conversion into equity is freely permitted subject to Regulations
applicable for foreign investment in Startups
Security In the nature of movable, immovable, intangible assets
Hedging Not Compulsory

16. ECB’s are designed to largely fund Capex….
they are not designed for working capital funding /
venture funding / Debt Restructuring……

17. Hedging
ECB Exposure

18. Hedging ECB’s – US$ vs INR
55.00
60.00
65.00
70.00
75.00 Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Avg USD/INR
12.1% over the last 2 years
40.00
45.00
50.00
55.00
60.00
65.00
70.00
75.00
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Avg USD/INR
47.5% over the last 10 years
63.64
71.31
71.31
48.35

19. Hedging ECB’s – Movement in LIBOR
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
1 Yr Libor
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50% Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
1 Yr Libor
12.3% over the last 2 years
415% over the last 10 years
2.27%
2.02%
1.99%
1.99%

20. Thank You…..