PRESENTATION ON:

ECB & FCCB

Presented By :
•Apurv Gourav BA – 0712 •Parikshit Gupta BA – 0731 •Saurabh Dwivedi BA – 0745

External Commercial Borrowing .

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

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

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

Roads & Bridges. telecom. Ports. Power. consistent with prudent debt management • Greater priority for projects in the infrastructure. oil. . railways.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. Industrial parks. urban Infrastructure & export sector.

Ways of raising ECB •Automatic route •Approval route .

are under Automatic Route. applicants may take recourse to the Approval Route. i.Automatic Route • ECB for investment in real sector -industrial sector. especially infrastructure sector-in India.e. do not require RBI permission • Government approval. . In case of doubt as regards eligibility to access • Automatic Route.

. • Individuals.Eligible Borrowers • Corporate (registered under the Companies Act except financial intermediaries) • Units in Special Economic Zones (SEZ) are allowed to raise ECB for their own requirement. Trusts and Non-Profit making organizations are not eligible to raise ECB.

Recognized Lenders • International banks • International capital markets • Multilateral financial institutions (IFC. CDC) • Export credit agencies • Suppliers of equipment • Foreign collaborators • Foreign equity holders . ADB.

minimum equity of 25% held directly by the lender & debt-equity ratio not exceed 4:1 (The proposed ECB not exceeding four times the direct foreign equity holding).minimum equity of 25% held directly by the lender • For ECB more than $ 5 m . .Condition for Foreign Equity Holders • For ECB up to $ 5 m .

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

urban infrastructure (water supply.industrial sector SME and infrastructure sector • Power. sanitation and sewage projects) • Overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) . by new or existing production units. industrial parks. Telecommunication. road including bridges.Utilization Import of capital goods (as classified by DGFT in the Foreign Trade Policy). in real sector . Railways. sea port and airport.

Restricted Areas • Utilization of ECB is not permitted for on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate • Utilization of ECB is not permitted in real estate • Utilization of ECB is not permitted for working capital. . general corporate purpose and repayment of existing Rupee loans.

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. .

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. .

Procedure • No prior approval of RBI is required • The borrower must obtain a Loan Registration Number (LRN) from RBI before drawing down the ECB. • The procedure for obtaining LRN is detailed in para II (i) (b). of FEMA .

Approval Route .

Any ECB availed for this purpose so far will be deducted from their entitlement. IRCON and EXIM Bank are considered on a case by case basis. . IL&FS. Power Trading Corporation.Eligible Borrowers • FI’s dealing exclusively with infrastructure or export finance such as IDFC. Power Finance Corporation. • Banks & FI’s which had participated in the textile or steel sector restructuring package as approved by the Government are permitted to the extent of their investment in the package and assessment by Reserve Bank based on prudential norms.

Eligible Borrowers • ECB with minimum average maturity of 5 years by NBFCs from multilateral financial institutions reputable regional financial institutions. • Corporate in services sector viz. hospitals and software companies can avail ECB for import of capital goods . hotels. official export credit agencies and international banks to finance import of infrastructure equipment for leasing to infrastructure projects.

or any other entity notified by the Reserve Bank. set up to finance infrastructure companies / projects exclusively.Eligible Borrowers • Special Purpose Vehicles. • Corporate engaged in industrial sector and infrastructure sector in India can avail ECB for Rupee expenditure for permissible end-uses. will be treated as Financial Institutions and ECB by such entities will be considered under the Approval Route. • Multi-State Co-operative Societies engaged in manufacturing activity satisfying the following criteria i) the Co-operative Society is financially solvent and ii) the Co-operative Society submits its up-to-date audited balance sheet. .

(iii) minimum size of FCCB is USD 100 million. 500 crore. (iv) the applicant should submit the purpose / plan of utilization of funds. (ii) a listing on the BSE or NSE.Eligible Borrowers Foreign Currency Convertible Bonds (FCCBs) by housing finance companies satisfying the following minimum criteria: (i) the minimum net worth of the financial intermediary during the previous three years shall not be less than Rs. .

. Such NGO (i) should have a satisfactory borrowing relationship for at least 3 years with a scheduled commercial bank authorized to deal in foreign exchange (ii) 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 Authorized Dealer bank.Eligible Borrowers • NGOs engaged in micro finance activities are eligible to avail ECB for Rupee expenditure for permissible end-uses. The maximum limit for NGOs are $ 5 m.

CDC (iv) export credit agencies (v) suppliers' of equipment (vi) foreign collaborators (vii)Foreign equity holders . ADB.Recognized Lenders • ECB’s can be raise from international sources such as (i) international banks (ii) international capital markets (iii) multilateral financial institutions (such as IFC.

.Condition for Foreign Equity Holders • The minimum equity held directly by the foreign equity lender is 25 % but debt-equity ratio exceeds 4:1 (The proposed ECB not exceeding four times the direct foreign equity holding).

certificate should contain (i) The lender maintains an account with the bank for at least a period of two years (ii) The lending entity is organized as per the local law and held in good esteem by the business/local community and (iii) that there is no criminal action pending against it.Overseas Organizations proposing to lend ECB would have to furnish a certificate of due diligence from an overseas bank which in turn is subject to regulation of hostcountry regulator and adheres to Financial Action Task Force (FATF) guidelines to the AD bank of the borrower. Borrowing from Overseas Organizations .

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

e. hospitals and software companies can avail ECB up to $100 m . hotels.Amount & Maturity Apart from above automatic route norms: • Additional amount of $ 250 m with average maturity of more than 10 years under the approval route • Corporate in infrastructure sector can avail ECB up to $ 100 m • Corporate in industrial sector can avail ECB up to $50 m • Corporates in the services sector i.

. sanitation and sewage projects) • Overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) • Import of capital goods by corporate in the service sector. industrial parks.Utilization • Power. sea port and airport. hotels. road including bridges. viz.. hospitals and software companies. Telecommunication. urban infrastructure (water supply. Railways.

Restricted Areas • On-lending or investment in capital market or acquiring a company • Real estate • For working capital. general corporate purpose and repayment of existing Rupee loans. .

.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.

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.

of FEMA . • The procedure for obtaining LRN is detailed in para II (i) (b).Procedure • No prior approval of RBI is required • The borrower must obtain a Loan Registration Number (LRN) from RBI before drawing down the ECB.

All-in-cost ceilings Expenses paid in foreign Currency • Interest • Other fees & expenses Expenses paid in Indian Currency • Commitment fee • Pre-payment fee (The payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost.) .

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

Empowered Committee A committee established to accept the proposal scrutiny it and forward application to RBI for permission for Approval route ECB .

Compliances with ECB Guidelines • Contravention of the ECB guidelines will be viewed seriously • Penal action will be taken under FEMA 1999 (cf. (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. 31 dated February 1. A. P.

if any.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. • Pricing of shares is as per SEBI and erstwhile CCI guidelines/regulations in the case of listed/unlisted companies as the case may be. • The foreign equity holding after such conversion of debt into equity is within the sectoral cap. .

2.$ 5 Million Scheme AD banks are permitted to approve elongation of repayment period for loans raised under the $ 5 m Scheme. Mumbai within seven days of approval and subsequently in ECB . • Such approval with existing and revised repayment schedule along with the Loan Key/Loan Registration Number should be initially communicated to the Chief General Manager-in-Charge. Foreign Exchange Department. provided • The overseas lender has given letter for such reschedulement without any additional cost. . Reserve Bank of India. ECB Division. Central Office.

Central Office. Foreign Exchange Department. Mumbai 400 001. .Application The complete application should be submitted by the applicant through the designated authorized dealer to the Chief General Manager-In-Charge. Reserve Bank of India. ECB Division.

. (ii) A copy of the import contract.Documentation (i) A copy of offer letter from the overseas lender/supplier furnishing complete details of the terms and conditions of proposed ECB. proforma/commercial invoice/bill of lading.

96 2003-04 8175.Year ECB Inflows $ (mn approx) 2001-02 2652.64 2002-03 4234.50 .

Jun 08 .20 Dec 08 6212 6000 5000 4827 4136 3934 4000 3959 4077 $(mn) 3000 2000 1761 1559 1000 0 Jan-Mar 06 Apr-Jun 06 Jul-Sep 06 Oct-Dec 06 Jan-Mar 07 Apr-JUN 07 Jul-Sep 07 Oct-Dec 07 Jan-Mar 08 Apr.Inflow of ECB 6990 7000 6673 SOURCE –DNA Money.

23 SOURCE-RBI .Month (2008) May June July ECB Inflows $ (mn approx) 0995.95 1125.59 2834.82 August September October 0897.67 1446.08 2461.

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.

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

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

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

ii. Approval Route

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

Power Finance Corporation. IL&FS. Any ECB availed for this purpose so far are deducted from their entitlement.Approval Route • Financial Institutions dealing exclusively with infrastructure or export finance such as IDFC. Power Trading Corporation. 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. 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. New projects.

sell or deal in securities by SEBI .Ministry of Finance Guideline for Listed Companies • Eligibility of Issuer – Only Companies who are allowed to raise capital from Indian market • Eligibility of Subscriber – Overseas Corporate Bodies (OCBs) who are eligible to invest in India through the portfolio route and entities allowed to buy.

(ii) The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date. .Pricing of FCCB • The pricing should be made at a price not less than the higher of the following two averages: (i) The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date.

. per company.Buy Back of FCCB • The buyback value of the FCCB shall be at a minimum discount of 25% on the book value • The funds used for the buyback shall be out of internal accruals. to be evidenced by Statutory Auditor and designated AD Category – I bank's certificate • The total amount of buyback shall not exceed USD 50 million of the redemption value.

2000 as amended from time to time. • The FCCB issue needs to conform to External Commercial Borrowing guidelines. . issued by RBI vide Notification No. FEMA 3/2000-RB dated May 3.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. 1993.

2007 launched and priced a Foreign Currency Convertible Bonds (FCCBs) issuance for an amount of USD 300 million. advisor to the Company. are convertible at a conversion price of Rs 1.800 per share. which have a maturity of 5 years and 1 day.Suzlon Energy Limited • May 16. • Deutsche Bank is the Sole Bookrunner to the transaction. • The FCCBs is listed on the Singapore Exchange Securities Trading Ltd. . • The FCCBs. and Yes Bank Ltd.

com .References    Reserve Bank of India www.org.in www.sulekha.nic.com www.femaonline.in Foreign Exchange Management Act www.banknetindia.rbi.indlaw.lawandlaws.in Ministry of Finance www.com www.finmin.

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