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

 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…
 Amount and Maturity –
1. The maximum amount of ECB which can be raised by a
corporate is USD 500 million or equivalent during a
financial year.
2. ECB up to USD 20 million or equivalent in a financial
year with minimum average maturity of three years.
3. ECB above USD 20 million and up to USD 500 million
or equivalent with a minimum average maturity of five
years.
4. 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…
 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
 Eligible Borrowers
1. 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
2. Banks and financial institutions which had participated in the textile or
steel sector restructuring package as approved by the Government
3. ECB with minimum average maturity of 5 years by Non-Banking
Financial Companies (NBFCs) from multilateral financial institutions
4. Foreign Currency Convertible Bonds (FCCBs) by housing finance
companies
5. The others like Multi-State Co-operative Societies, Non-Government
Organisations (NGOs) etc.
 Conti…
 Recognized Lenders -
1. should have a satisfactory borrowing relationship for at least 3
years with a scheduled commercial bank authorized to deal in
foreign exchange and
2. 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 All-in-cost Ceilings over 6

Period 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
 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.

 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.

 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
 Borrowers in infrastructure sector may avail up to USD
100 million for Rupee expenditure for permissible end-
uses 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
1. Three years and up to five years 150 bps (Existing) 200
bps (Revised)
2. More than five years 250 bps (Existing) 350 bps
(Revised)
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