External Commercial Borrowing Of Public Sector Companies

External Commercial Borrowing of Public Sector Companies

Prepared By Manisha Pipaliya (45) Submitted To Mr.Hiren K Patel

Content  

External Commercial Borrowing External Commercial Borrowing Policy 1. AUTOMATIC ROUTE 2. APPROVAL ROUTE

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Format to raise ECB External Commercial Borrowing of public sector companies Modifications in external commercial borrowing policy

External Commercial Borrowing 

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External Commercial Borrowing (ECB) refers to commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments (e.g. floating rate notes and fixed rate bonds)] availed from non-resident lenders with minimum average maturity of 3 years. Purpose of ECB 1. financing the expansion of existing capacity 2. fresh investment, to augment the resources available domestically 3. an additional source of funds to Indian corporate and Public Sector Units

It is defined to include….. 1. Commercial bank loans 2. Buyers credit 3. Suppliers credit 4. Securitized instruments such as floating rate notes, fixed rate bonds etc. 5. Credit from official export credit agencies 6. Commercial borrowings from the private sector window of multilateral financial institutions such as IFC, ADB, AFIC, CDC etc. 7. Investment by Foreign Institutional Investors (FIIs) in dedicated debt funds.

Sources to raise ECB a. Banks b. Export credit agencies c. Suppliers of equipment d. Foreign collaborations e. Foreign equity holders f. International capital markets etc.

External Commercial Borrowing Policy  ECB

can be accessed under two routes, viz., 1. Automatic Route 2. Approval Route  ECB for investment in real sector -industrial sector, especially infrastructure sector-in India, are under Automatic Route  In case of doubt as regards eligibility to access Automatic Route, applicants may take recourse to the Approval Route.

AUTOMATIC ROUTE Eligible Borrowers Corporate (registered under the Companies Act), Units in Special Economic Zones (SEZ)  Recognized Lenders - Borrowers can raise ECB from internationally recognized sources A "foreign equity holder" to be eligible as “recognized lender” under the automatic route would require minimum holding of equity in the borrower company as set out below: (i) For ECB up to USD 5 million - minimum equity of 25 per cent held directly by the lender, (ii) For ECB more than USD 5 million - minimum equity of 25 per cent held directly by the lender and debt-equity ratio not exceeding 4:1 (i.e. the proposed ECB not exceeding four times the direct foreign equity holding). 

Conti…  1.

2. 3.

4.

Amount and Maturity – The maximum amount of ECB which can be raised by a corporate is USD 500 million or equivalent during a financial year. ECB up to USD 20 million or equivalent in a financial year with minimum average maturity of three years. ECB above USD 20 million and up to USD 500 million or equivalent with a minimum average maturity of five years. ECB up to USD 20 million can have call/put option provided the minimum average maturity of three years is complied with before exercising call/put option.

Conti… 

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All-in-cost ceilings – The all-in-cost ceilings for ECB are reviewed from time to time. The following ceilings are valid till reviewed: All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. Average Maturity Period

All-in-cost Ceilings over 6 month LIBOR*

Three years and up to five200 basis points years More than five years

350 basis points

Conti…  End-use  End-uses

not permitted  Guarantees  Security  Parking of ECB proceeds overseas  Prepayment  Refinancing of an existing ECB  Debt Servicing

APPROVAL ROUTE  1.

2. 3. 4. 5.

Eligible Borrowers Financial institutions dealing exclusively with infrastructure or export finance, Power Finance Corporation, Power Trading Corporation, EXIM Bank are considered on a case by case basis 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 Non-Banking Financial Companies (NBFCs) from multilateral financial institutions Foreign Currency Convertible Bonds (FCCBs) by housing finance companies The others like Multi-State Co-operative Societies, Non-Government Organisations (NGOs) etc.

Conti…  1.

2.

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Recognized Lenders should have a satisfactory borrowing relationship for at least 3 years with a scheduled commercial bank authorized to deal in foreign exchange and Would require a certificate of due diligence on `fit and proper’ status of the board/committee of management of the borrowing entity from the designated AD bank. Amount and Maturity(a) Corporate can avail of ECB of an additional amount of USD 250 million with average maturity of more than 10 years under the approval route, over and above the existing limit of USD 500 million under the automatic route, during a financial year. Other ECB criteria such as end-use, all-in-cost ceiling, recognized lender, etc. need to be complied with.

Conti… (b) Corporate in infrastructure sector {as defined in paragraph 1(A) (v) (a)} can avail ECB up to USD 100 million and corporate in industrial sector can avail ECB up to USD 50 million for Rupee capital expenditure for permissible end-uses within the overall limit of USD 500 million per borrower, per financial year, under Automatic Route. (c) NGOs engaged in micro finance activities can raise ECB up to USD 5 million during a financial year. Designated AD bank has to ensure that at the time of drawdown the forex exposure of the borrower is hedged. (d) Corporate in the services sector viz. hotels, hospitals and software companies can avail ECB up to USD 100 million, per borrower, per financial year, for import of capital goods.

Conti…  All-in-cost

ceilings

All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. Moreover, the payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost. The current all-in-cost ceilings are as under:

Average Maturity Period

All-in-cost Ceilings over 6 month LIBOR*

Three years and up to200 basis points five years More than five years

350 basis points

Conti…  End-use  End-uses

not permitted  Guarantee  Security  Parking of ECB proceeds overseas  Prepayment  Refinancing of an existing ECB  Debt Servicing  Procedure

External Commercial Borrowing of public sector companies 

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NTPC’s future borrowing programme as Domestic borrowings are being pegged at Rs45,199 crore while external commercial borrowings (ECB) are being tentatively pegged at Rs60,309 crore Public sector company SCI, which has already placed orders for 32 ships worth $1.87 billion, will now be inviting bids for its $3 billion order of 40 ships. We plan to 25% through internal accruals and rest 75% through external commercial borrowings (ECB),” said S Hajara, chairman & MD, SCI. (Shipping corporation of India) Heavy Engineering Corp, BHEL to start joint venture ... ($452.4 million) through external commercial borrowing (ECB) or bond issue Refining major, Hindustan Petroleum Corporation has signed an agreement to raise Japanese yen equivalent of $200 million through the external commercial borrowings route.

Conti… 

SAIL has charted out capex plans of Rs 37,000 crore for scaling up its capacity to 22 million tonnes per annum (mtpa) from the current level of 14 mtpa over the next five years. The company is looking to raise money from overseas market through external commercial borrowing (ECB) to part finance this project.

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Mr R.K. Goel, Director (Finance) GAIL, said that expanding the pipeline infrastructure to 12,000 km will cost about Rs 20,000 crore by 2011-12. if the Government relaxes the external commercial borrowings (ECB) norms for public sector undertakings, the company may consider raising 40 per cent through this route.

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Oil and Natural Gas Corporation (ONGC) plans to tap the external commercial borrowing (ECB) route to raise funds to acquire oil equity abroad through its subsidiary ONGC Videsh (OVL)

Modifications in external commercial borrowing policy 

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Borrowers in infrastructure sector may avail up to USD 100 million for Rupee expenditure for permissible enduses under the Approval Route. In the case of other borrowers, the existing limit of USD 20 million for Rupee expenditure for permissible end-uses under the Approval Route has been enhanced to USD 50 million Average Maturity Period All-in-Cost ceilings over 6 Months Three years and up to five years 150 bps (Existing) 200 bps (Revised) More than five years 250 bps (Existing) 350 bps (Revised)

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