External Commercial Borrowings

External Commercial
Borrowings
A presentation by
Ram Pujari
ECBs – Presentation content
Contents
– Definition
– Annual cap
– Priority and allocation
– Maturity specifications
– Interest rates
– Who can raise how much
– End use
– Other terms and conditions
– Management
– Credit Enhancement
– Procedure
ECBs - Definition
ECB are defined to include commercial bank loans,
– buyer’s credit,
– supplier’s credit,
– securitised instruments like floating rate notes, fixed rate bonds
etc.,
– credit from official export credit agencies,
– commercial borrowings from the private sector window of IFC,
ADB, AFIC, CDC etc. and
– Investment by FIIs in dedicated debt funds
ECBs can be raised from any internationally recognized source such as banks,
export credit agencies, suppliers of equipment, foreign collaborators,
foreign equity holders, international capital markets etc.
ECBs- End-use Stipulations
Long-term ECBs can be raised as follows
Amount Minimum Average maturity
Up to $ 200 Mio 8 years
> $ 200 Mio and up to $ 400 Mio. 16 years
• No end-use restrictions i.e. for general corporate objectives
(excluding investments in stock markets ).
• The instrument should not include any "Put" or "Call" options
potentially reducing the stated maturities.
• The total debt allowed through this window will be within the
overall limit of the borrower's ECB entitlement.
ECBs – Priority in allocation
Priority and Allocation
• Projects in infrastructure and core sectors (such as
power, telecommunication, railways etc.)
• The export sector, Development Financial Institutions
(DFIs)
• Medium and small - scale units.
ECBs – Maturity Specifications
Type of Borrower Amount Min Avg Maturity
General (except EOUs)
<= $ 20 mio 3 years
> $ 20 mio. 5 years
1. 100% EOU
$ 20 mio or
60% of Proj Cost 3 years
1. DFIs, Infrastructure/ Oil Exploration and Development (not refining) organisation
<= $ 20 mio 3 years
> $ 20 mio or
50% of Proj Cost 5 years
1. Exporters/ Foreign Exchange Earner's scheme
Lower of $ 200 mio or
Twice the avg annual exports
in the previous three years 5 years
Scheme Amount Min. Avg Maturity
Long Term ECB Scheme - Slab A
upto $ 200 mio 8 to 16 years
Long Term ECB Scheme - Slab B
upto $ 400 million 16 years
Infrastructure Projects (Holding Co.'s/Promoters' contribution
/ SPVs)
<= $ 200 Million
to finance equity investment
in a subsidiary implementing
infrastructure projects. Unspecified
ECBs – Single Window
The $ 5 million scheme
All corporates/institutions can raise at a simple maturity of three

years.
• Proceeds of this window can be used for rupee expenditure
• Only one such loan is outstanding at any point of time.
• Can be raised in one or more tranches but total outstandings at
any point of time should not exceed USD 5 million.
• Each tranche should have a minimum simple maturity of 3 years.
• NRIs, joint venture partners can also give ECBs routed through
an internationally recognised bank.
ECBs - Terms
Interest Rate
• Project financing -interest spreads can be upto 350 bp above
LIBOR/ US Treasury
• Upto 50% of debt may be in the form of subordinated debt at a
higher interest rate
• Composite spread for senior and subordinated debt taken
together – not to exceed 350bp.
Who can raise how much
ECB entitlement for new projects
• All infrastructure and greenfield projects 50% of the total
project cost Telecom Projects upto 50% of the project cost
(including license fees)
• In the case of power projects, greater flexibility will be allowed,
based on merits.
ECBs – End-use
• To fund forex costs of capital goods/services (on FOB/ CIF basis).Proceeds
should be utilized at the earliest - RBI monitors.
• To fund rupee project costs also in case of infrastructure projects in the
– Power
– Telecommunications
– Railway sectors
– License fee payments in case of telecom sector.
• To acquire ships/vessels from Indian shipyards
• For financing the development of integrated townships as defined by
Ministry of Commerce & Industry, Department of Industrial Policy &
Promotion SIA (FC Division) Press Note 3 (2002 series. dated 04.01.02).
• Proceeds must be brought into the country immediately.
• ECB proceeds will not be utilised for investment in the stock market
ECBs – Bonds/FRNs – Spl norms
Proceeds from Bonds & FRN
• Can be used to finance project related rupee expenditure till
actual import of capital equipments takes place
or upto one year, whichever is less.
• New ECBs can be accessed only after the Company’s statutory
auditor certifies that it has fully utilised the amount for import
of the capital equipment and services.
• Other terms and conditions
• 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.
ECBs – Other stipulations
Security
• The choice of security is left to the borrowers.
• Where security is a guarantee from an Indian bank, counter -
guarantee or confirmation by a foreign bank is not allowed.
Exemption from withholding tax
• All interest payments and fees etc. on ECBs are eligible for
withholding tax exemption under Section 10(15) (iv) (b) to (g)
of the Income Tax Act, 1961.
• Exemptions under section 10(15) (iv) (b), (d) to (g) are granted
by the Department of Economic Affairs while exemption under
section 10(15) (iv) (c) is granted by the Department of Revenue,
Ministry of Finance.
ECB Approvals
• Approvals needed
• Up to $ 50 Mio. Per year Under automatic approval route
• $50 to 100 Mio RBI approval
• Over $100 Mio ECB Division, DoEA Ministry of
Finance and
• RBI under FEMA
• Borrower will submit an executed copy of the loan agreement to
RBI or ECB Cell as the case may be for taking the same on
record
• Monitoring of end use of ECB will continue to be done by RBI.
Management of ECBs
Pre-payment of ECB - Prepayment of ECBs has been delegated to RBI.
• Prepayment will be permitted without any limit and also without any
conditions
• This window of prepayment would be effective up-to 31st March 2003.
• The Reserve Bank of India will issue necessary Press Note incorporating the
above, revised prepayment guidelines.
• Entire outstandings may be prepayed from export earnings.
Refinancing of existing foreign currency loans

• Refinancing of existing loans by fresh loans at lower costs permitted on a
case - to - case basis
• The outstanding maturity of the original loan is to be maintained.
• Rolling over of ECB will not be permitted.
Credit Enhancement
• In the event of default, foreign banks giving guarantee will pay defaulted
principal and interest after bringing in foreign exchange into the country.
• Interest rate could be coupon on the Bond/or 250 bps over prevailing
secondary market yield of 5-year GOI security, whichever is higher.
• FEMA clearance should be obtained from RBI in advance of issuance.
• Prior clearance for rupee debenture issue from RBI/SEBI should be obtained.
• The default should be foreign exchange equivalent amount equal to the
principal and interest outstanding calculated in rupee terms.
• The liability of Indian company will always be rupee denominated and the
debt servicing may be done in equivalent foreign exchange funds.
• The guarantee fee/commission/charges and other incidental expenses should
be in rupee terms only. All-in-cost on this account should not exceed 3% p.a.
in rupee terms.
• In case of the proposals where conditions apply clearances e.g. relating to the
assignability of licenses etc., these should be obtained in advance.
ECB Procedure
• Procedure
• The application should contain the following information :
• An Offer Letter (in original) from the lender giving the detailed terms and
conditions
• Copy of the project appraisal report from a recognised financial institution/
bank, if applicable
• Copies of relevant documents and approvals from central/ state governments,
wherever applicable, such as
– FIPB, CCEA and SIA clearances,
– environmental clearances,
– techno - economic clearance from Central Electricity Authority,
– valid licences from Director General of Foreign Trade (Ministry of Commerce)
or Department of Telecommunications,
– no - objection certificate from Ministry of Surface Transport,
– evidence of exports from competent authority,
– registration with RBI in case of NBFCs etc.

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External Commercial Borrowings

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External Commercial

All corporates/institutions can raise at a simple maturity of three

Exemption from withholding tax

Refinancing of existing foreign currency loans

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