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PRESENTATIO

N ON:
ECB
&
FCCB

Presented By :
• Ashish makwana 23
• Sandeep singh 51
• Rahul gupta 15
• Anilkumar pal 33
• Vinodkumar chaubey 03
• Abhimanyu singh 49

External

Commercial

Borrowing

ECB
• Tata Steel Ltd. raised $500 million through ECB
to support its acquisition of Corus in 2007.
• Anil Dhirubhai Ambani Group's Reliance
Communication raises $150 million via ECB
• Shyam Telelink raises$310 million via ECB
• Aircel eyes $500-mn ECB refinance
• DLF in talks to refinance $300-million ECB at
7%

Data on ECB for the month of June 2010 I Automatic Route Borrrower Equivalent Purpose Maturity Amount in Period (Appx) USD 1 ECB Experian Credit Info. Months 2 ECB Vodafone Essar South Ltd. 150000000 Power 6 Years 7 Months II Approval Route 1 ECB Colruyt IT Consultancy India 7254468 Modernisation 9 Years 2 Pvt Ltd Months 2 ECB Suryajyoti Spinning Mills Ltd.245 Expansion 3 Years 10 India P. 5650000 FCCB_Buy. 5 Years 10 Back Months . 50500000 Expansion 10 Years 11 Months 3 ECB Jindal Steel & Power Ltd 50000000 Modernisation 5 Years 4 ECB Adani Power Ltd. Com.267. 1.L.

ECB • A source of funds for financing expansion of existing capacity and for fresh investment out of territory • External Commercial Borrowings (ECB) refer to commercial loans availed from non-resident lenders .

. ECB includes: • commercial bank loans • buyer’s credit • supplier’s credit • securitized instruments such as floating rate notes • fixed rate bonds • credit from official export credit agencies.

CDC etc. AFIC. ECB includes: • Commercial borrowings from the private sector • Window of multilateral financial institutions such as IFC. • Investment by Foreign Institutional Investors (FIIs) in dedicated debt funds . ADB.

Why ECB • Scarcity of fund in domestic market • Cheaper than domestic debts .

Regulation • Clause (d) of sub-section 3 of section 6 of the Foreign Exchange Management Act. 1999 (FEMA) • With section 6 of Notification No. 2000 (amended) . FEMA 3 / 2000-RB dated May 3.

Policy • Permitted by the Government as a source of finance for Corporate to expand their existing capacity & for fresh investment • An annual cap or ceiling on access to ECB. Roads & Bridges. consistent with prudent debt management • Greater priority for projects in the infrastructure. . Power. urban Infrastructure & export sector. telecom. railways. Industrial parks. Ports. oil.

Ways of raising ECB •Automatic route •Approval route .

Housing • ECBs with minimum average maturity of 5 Finance companies and NBFCs). • Corporate engaged in industrial & infrastructure sector . • SPVs. years by NBFCs to finance import of infrastructure equipment for leasing to • Units in Special Economic infrastructure projects. in manufacturing activities. projects. Zones (SEZ) are allowed • FCCBs by housing finance companies to borrow funds through ECBs satisfying the prescribed criteria for their own requirements. Trusts and Non. Profit making organizations are • Multi-State Co-operative Societies engaged not eligible to raise ECBs. Eligible Borrowers Automatic Route Approval Route • Financial Institutions dealing exclusively • Indian Companies except with infrastructure or export finance financial intermediaries • Banks and Financial Institutions which (such as Banks. Financial participated in the textile or steel sector restructuring package Institutions (FIs).or any other entity notified by RBI. set up to finance infrastructure companies / • Individuals.

foreign credit agencies. Recognized Lenders Automatic Route Approval Route • Internationally recognized • Internationally recognized sources (international banks. 4:1 • In such cases the debt-equity ratio may exceed 4:1. sources (international banks. foreign collaborators) • foreign equity holders (other • foreign equity holders (other than than erstwhile OCBs) if: erstwhile OCBs) if:  ECB up to 5 MUSD – minimum equity 25% • such 'foreign equity holder'  ECB above 5 MUSD – directly holds minimum 25 % of Minimum equity of 25% and the paid up equity capital of the debt-equity ratio not exceeding borrowing company. multilateral capital markets. capital markets. . if the RBI permits. export financial Institutions. equipment collaborators) suppliers. multilateral financial Institutions. export credit agencies.

Permitted End Uses Of ECB Proceeds Automatic Route Approval Route • Import of capital goods by • In addition. infrastructure sector. • Refinancing of an existing ECB . • Import of capital goods by service sector companies • Not use for repayment of • First stage acquisition of shares of loan. mandatory second stage offer to the public. and modernization / expansion of including SMEs. the ECB proceeds can also be utilized for the new or existing following purposes with the prior production units in real approval of RBI – • Implementation of new projects sector. existing production units by the companies engaged in the • Investment in industrial sector including SME. investment in capital PSUs in the disinvestment process by Government and also in the market etc.industrial sector.

Automatic Route .

. ECB above $ 20 m and up to USD 500 million or equivalent with a minimum average maturity of five years. ECB up to $ 20 m or equivalent in a financial year with minimum average maturity of three years . Amount & Maturity Maximum ECB which can be raised is $ 500 m or equivalent during a financial year. 2. 1.

. Prepayment • Prepayment of ECB up to $ 500 m is allowed without prior approval of RBI • Minimum average maturity period is applicable to the loan.

Refinancing • The fresh ECB is raised at a lower cost than the existing • Maturity of the original ECB is maintained. .

Parking of ECB • Deposits or Certificate of Deposit or other products offered by banks • Deposits with overseas branch of an authorized dealer in India • Treasury bills and other monetary instruments of one year maturity Rating of above institution – AA (-) by S&P/Fitch IBCA or Aa3 by Moody’s The funds should be invested in such a way that the investments can be liquidated as and when funds are required by the borrower in India. .

Approval Route .

Prepayment • Prepayment of ECB up to $ 500 m is allowed without prior approval of RBI • Pre-payment of ECB for amounts exceeding $ 500 m would be considered by the Reserve Bank under the Approval Route.) . (Minimum average maturity period is applicable to the loan.

. Refinancing • The fresh ECB is raised at a lower cost than the existing • Maturity of the original ECB is maintained.

Expense Ceiling Average All-in-cost Ceiling Maturity Period over 6 month LIBOR* Three years and up 200 basis points to five years More than five 350 basis points years .

A. 31 dated February 1.Compliances with ECB Guidelines • Contravention of the ECB guidelines will be viewed seriously • Penal action will be taken under FEMA 1999 (cf. . P. (DIR Series) Circular No. 2005) • The designated AD bank is required to ensure that raising / utilization of ECB is in compliance with ECB guidelines at the time of certification.

• Pricing of shares is as per SEBI and erstwhile CCI guidelines/regulations in the case of listed/unlisted companies as the case may be. if any. • The foreign equity holding after such conversion of debt into equity is within the sectoral cap. . Conversion of ECB into Equity • The activity of the company is covered under the Automatic Route for Foreign Direct Investment or Government approval for foreign equity participation has been obtained by the company.

Inflow of ECB .

usually the rates of interest are fixed • The interest and the borrowed amount are repatriable • No owners risk as in case of Equity Investment  Borrower • No dilution in ownership • Considerably large funds can be raised as per requirements of borrower • Usually only a fixed rate of interest is to be paid • Easy Availability of funds because ECB is more appealing to Investors . which can be as short as three years • Fixed Return. Why ECB is attractive?  Investor • ECB is for specific period.

Foreign Currency Convertible Bond .

FCCB Foreign Currency Convertible Bonds (FCCB) are debt instruments issued in a currency different than the issuer’s domestic currency with an option to convert them in common shares of the issuer company. .

• FCCB issues have a ‘Call’ and ‘Put’ option to suit the structure of the bond. .a. at a pre-determined strike rate. both the options are subject to RBI guidelines. This translates to cost saving of approx 2-3 percent p. • The interest on FCCBs is generally 30% -40% less than on normal debt paper or foreign currency loans or ECBs. Features of FCCB • A debt instrument which can be converted into a company’s equity shares if the investor chooses to do so.

generally Indian issuer have listed at Singapore Stock Exchange and in many cases also on Luxembourg Stock Exchange. Features of FCCB • FCCB can be secured as well as unsecured. • FCCB can be converted into Indian Shares or American Depository Receipts (ADR) • FCCB are generally listed to improve liquidity. . Most of the FCCB issued by Indian Companies are generally unsecured.

Approval Route .Statutory Guideline & RBI Regulation FCCB can be raised by two ways : i. Automatic Route ii.

Automatic Route The automatic route is available to real sector i.e. Industrial sector. specially infrastructure sector-in India .

Power Finance Corporation. Power Trading Corporation. Any ECB availed for this purpose so far are deducted from their entitlement. IL&FS. Approval Route • Financial Institutions dealing exclusively with infrastructure or export finance such as IDFC. IRCON and EXIM Bank • Banks and financial institutions which had participated in the textile or steel sector restructuring package as approved by the Government are also permitted to the extent of their investment in the package and assessment by RBI based on prudential norms. .

Regulations • Minimum Average Maturity shall be 3 years for borrowing up to $ 20 m and 5 years in case it exceeds $ 20 m • The maximum amount of ECB to be raised in a financial year can be $ 500 m .

Utilization (a) Investment purposes like Import of Capital goods. . New projects. modernization/expansion programs in Industrial and infrastructure sector (b) Overseas direct investment in JV or wholly owned subsidiaries abroad (c) RBI guidelines provide that funds received through FCCB should be parked abroad till the actual requirement arises in India.

Issuance of FCCB By Indian Companies • FCCBs can be issued by Indian companies in the overseas market in accordance with Scheme for Issue of FCCB & Ordinary Shares (Through Depository Receipt Mechanism) Scheme. • The FCCB issue needs to conform to External Commercial Borrowing guidelines. 2000 as amended from time to time. FEMA 3/2000-RB dated May 3. issued by RBI vide Notification No. . 1993.

which have a maturity of 5 years and 1 day. • The FCCBs. 2007 launched and priced a Foreign Currency Convertible Bonds (FCCBs) issuance for an amount of USD 300 million. are convertible at a conversion price of Rs 1. • The FCCBs is listed on the Singapore Exchange Securities Trading Ltd. .800 per share. Suzlon Energy Limited •  May 16.

. • The Reserve Bank of India (RBI) liberalized ECB guidelines by permitting hotels. • ECBs have become an integral part of the Indian borrowing source and seem likely to stay so for a long time to come. hospitals and software companies to avail ECB up to certain prescribed limits. CONCLUSION • ECBs have emerged as a forerunner in the credit market and have steadily gained huge prominence in the Indian market. the Indian government should tread cautiously and keep a check on capricious borrowings from foreign lenders while at the same time providing flexibility and keeping the health of the Indian economy in mind. • However. although the retail sector has been left out.