INFRASTRUCTURE PROJECTS
Holding Companies/promoters will be permitted to raise ECB upto a maximum of USD 50 million equivalent to finance equity investment in a subsidiary/joint venture company implementing infrastructure projects. This flexibility is being given in order to enable domestic investors in infrastructure projects to meet the minimum domestic equity requirements.
In case the debt is to be raised by more than one promoter for a single project then the total quantum of loan by all promoters put together should not exceed USD 50 million.
LONG-TERM BORROWERS
1.ECB of eight years average maturity and above will be outside the ECB ceiling, though MOF/RBI's prior approval for such borrowings would continue to be necessary. The extent of debt under this window will be reviewed by the Government periodically.
2.Funds raised under this window will not be subject to end-use restriction other than that relating to investment in real estate and stock market.
ON-LENDING BY DFIs AND OTHER FINANCIAL INTERMEDIARIES
While DFIs are required to adhere to the average maturity criteria prescribed, namely, minimum of five years for loans more than USD 20 million equivalent and minimum three years for loans less than or equal to USD 20 million equivalent for their borrowing, they are permitted to on-lend at different maturities. They may also on-lend for project-related Rupee expenditure. However, other financial intermediaries are required to adhere to the general ECB guidelines on maturity as well as end-use in their on-lending programs.
All financial intermediaries, including DFIs, are required to on-lend their external commercial borrowings within 12 months of drawdown.
To enable better utilisation of ECBs by DFIs, it has been decided that DFIs would be permitted to onlend such Recycled Funds (available with them on account of time mismatch between repayment obligation of their sub-borrowers vis-à-vis those of DFIs to the offshore lenders), out of original ECBs only for import of capital goods and project-related rupee expenditure.
END-USE REQUIREMENTS
(A) External commercial loans are to be utilised for import of capital goods and services (on FOB or CIF basis) and for project related expenditure in all sectors
(B) Corporate borrowers will be permitted to raise ECB to acquire ships/vessels from Indian shipyards.
(C) Under no circumstances, ECB proceeds will be utilised for
(i) Investment in stock market; and
(ii) Speculation in real estate.
PROCEEDS FROM BONDs, FRNs & SYNDICATED LOAN
Corporate borrowers who have raised ECB for import of capital goods and services through Bonds/FRN/Syndicated loans are permitted to remit funds into India. The funds can be utilised for activities as per their business judgement except investment in stock market or in real estate, for upto one year or till the actual import of capital goods and services takes place, whichever is earlier. In case
borrowers decide to deploy the funds abroad till the approved end-use requirement arises, they can do so as per the RBI's extant guidelines. RBI guidelines would have to be strictly adhered to. RBI would be monitoring ECB proceeds parked outside.
ECB ENTITLEMENT FOR NEW PROJECTS
All infrastructure and greenfield projects will be permitted to avail ECB to an extent of 35% of the total project cost, as appraised by a recognised Financial Institution/Bank, subject to the fulfillment of other ECB guidelines. However, ECB limits for telecom projects are more flexible and an increase from the present 35% to 50% of the project cost (including the license fee) will be allowed as a matter of course.
Greater flexibility may also be allowed in case of power projects and other infrastructure projects based on merits.
ECB ENTITLEMENT FOR NEW PROJECTS
All infrastructure and greenfield projects will be permitted to avail ECB to an extent of 35% of the total project cost, as appraised by a recognised Financial Institution/Bank, subject to the fulfillment of other ECB guidelines. However, ECB limits for telecom projects are more flexible and an increase from the present 35% to 50% of the project cost (including the license fee) will be allowed as a matter of course.
Greater flexibility may also be allowed in case of power projects and other infrastructure projects based on merits.
INTEREST RATE FOR PROJECT FINANCING
At present, interest rate limits on ECB for project financing (i.e. to say non-recourse financing) allow interest spreads above LIBOR/US Treasury to be higher than for normal ECB. Keeping market conditions in mind, some flexibility will be permitted in determining the spread on merits. In order to give borrowers greater flexibility in designing a debt strategy, upto 50% of the permissible debt may be
allowed in the form of sub-ordinated debt at a higher interest rate, provided the composite spread for senior and sub-ordinated debt taken together comes within the overall project financing limit.
STRUCTURED OBLIGATIONS
In order to enable corporates to hedge exchange rate risks and raise resources domestically, Domestic Rupee Denominated Structured obligations would be permitted to be Credit enhanced by International Banks/International Financial Institutions/Joint Venture Partners.
OTHER TERMS AND CONDITIONS
Apart from the maturity and end-use requirements as per paras above, the financial terms and conditions of each ECB proposal are required to be reasonable and market-related. The choice of the sourcing of ECB currency of the loan, and the interest rate basis (i.e. floating or fixed), will be left to the borrowers.
SECURITY
The choice of security to be provided to the lenders/suppliers will also be left to the borrowers. However, where the security is in the form of a guarantee from an Indian Financial Institution or from an Indian Scheduled Commercial Bank, Counter-guarantee or confirmation of the guarantee by a Foreign Bank/Foreign Institution will not be permitted. EXEMPTION FROM WITHHOLDING TAX.
Interest @ payable by an industrial undertaking @ in India, related to external commercial borrowings as approved by GOI/RBI would be eligible for tax.
APPROVAL UNDER FERA
After receiving the approval from ECB Division, Department of Economic Affairs, Ministry of Finance, the applicant is required to obtain approval from the Reserve Bank of India under the Foreign Exchange Regulation Act, 1973, and to submit an executed copy of the Loan Agreement to this Department for taking the same on record, before obtaining the clearance from RBI for drawing the loan. Monitoring of end-use of ECB will continue to be done by RBI.
At present, ECB approvals under USD 3 million scheme (enhanced to US 5 million) is given by RBI and all other ECB proposals are processed in DEA. As a measure of further simplification and rationalisation, Government has decided to delegate the ECB sanctioning power to RBI up to USD 10 million under all the ECB schemes except structured obligation which is at present being administered by DEA.
Accordingly, applications for approval upto USD 10 million will be considered by the Exchange Control Department of RBI, Mumbai.
SHORT-TERM LOAN FROM Reserve Bank of India
While ECB for minimum maturity of three years and above will be sanctioned by Department of Economic Affairs, Ministry of Finance, approvals of short term foreign currency loans with a maturity of less than three years will be sanctioned by RBI, according to RBI guidelines.
VALIDITY OF APPROVAL
Approvals are valid for a period of six months, i.e. the executed copy of the loan agreement is required to be submitted within this period. In the case of FRNs, Bonds etc., the same are required to be launched within this period. In case of power projects, the validity of the approval will be for a period of one year and 9 months in the case of telecom sector project . Bonds, Debentures, FRNs and other such instruments will have additional validity period of three months for all the ECB approvals across the board. Extension will not be granted beyond the validity period.
PRE-PAYMENT OF ECB
a) Prepayment facility would be permitted if they are met out of inflow of foreign equity.
b) In addition to ECB being prepaid out of foreign equity, corporates can avail either of following two options for prepayment of their ECBs:
On permission by the Government, prepayment may be undertaken, within the permitted period, of all ECBs with residual maturity up to one year.
OR
Prepayment upto 10% of outstanding ECB to be permitted once during the life of the loan, subject to the company complying with the ECB approval terms. Those companies who had already availed prepayment facility of 20% earlier would not be eligible.
c) Validity of permission under the above two options will be as under :
1.Prepayment approval for ECBs other than Bonds/Debentures/FRNs will be 15 days or period up to next interest payment date, whichever is later.
2.In case of Bonds/FRNs, validity of permission will not be more than 15 days.
REFINANCING THE EXISTING FOREIGN CURRENCY LOAN
Refinancing of outstanding amounts under existing loans by raising fresh loans at lower costs may also be permitted on a case-to-case basis, subject to the condition that the outstanding maturity of the original loan is maintained. Rolling over of ECB will not be permitted.
A corporate borrowing overseas for financing its Rupee-related expenditure and swapping its external commercial borrowings with another corporate, which requires foreign currency funds, will not be permitted.
LIABILITY MANAGEMENT
Corporates can undertake liability management for hedging the interest and/or exchange rate risk on their underlying foreign currency exposure. Prior approval of this Department or RBI has been dispensed with.
No comments:
Post a Comment