Foreign Currency Loans
A Foreign Currency Loan should only be considered when the interest rate on the foreign currency is significantly lower than the borrower can obtain on a mortgage taken out in his or her domestic currency. Therefore, in effect, the borrower makes a capital saving.
- External commercial borrowing(ECB)
- Foreign Currency Convertible Bond (FCCB)
External Commercial Borrowing (ECB)
An external commercial borrowing (ECB) is an instrument used in India to facilitate Indian companies to raise money outside the country in foreign currency. The government of India permits Indian corporates to raise money via ECB for expansion of existing capacity as well as for fresh investments.
Merging of Tracks: As part of the Central government’s aim to improve ease of doing business in India, the Reserve Bank of India (RBI) on 16 January 2019 notified a new external commercial borrowings framework for Tracks I (medium-term foreign currency loans), Track II (long term foreign currency loan) and Track III (INR denominated ECB) and Rupee Denominated Bonds (‘RDB’ or ‘Masala Bonds’) from the existing framework have been merged and the new framework has the following simplified two categories:
• Foreign currency denominated ECB
• INR denominated ECB
Eligible Borrowers: The list of ‘eligible borrowers’ has been expanded to include all entities eligible to receive foreign direct investment (‘FDI’). Additionally, port trusts, units in special economic zones, SIDBI, EXIM Bank, registered entities engaged in micro-finance activities, viz., registered not for profit companies, registered societies/trusts/cooperatives and non-Government organisations can now avail ECB. Some of such companies which can now avail ECB are companies in sectors such as animal husbandry, agriculture, petroleum and natural gas, broadcasting, insurance etc.
ECB Limits: ECB upto USD 750 million or its equivalent per financial year (irrespective of specified activities/sector), which otherwise is in compliance with the parameters set out in the ECB Regulations, can be raised under the automatic route. Earlier, the ECB Regulations set out different limits for ECBs which could be raised by ‘eligible’ entities/ borrowers engaged in specified activities/sectors under the automatic route can be raised as upto USD 200 million for the software sector, USD 100 million for micro finance activities etc., which have now been aggregated.
Minimum Average Maturity Period (MAMP): MAMP will be 3 years for all ECBs. However, for ECB raised from foreign equity holder and utilised for specific purposes, as detailed in the Annex, the MAMP would be 5 years. Similarly, for ECB up to USD 50 million per financial year raised by manufacturing sector, which has been given a special dispensation, the MAMP would be 1 year as given in the Annex.
End-Uses: ECB proceeds can be utilised for capital expenditure in the form of: a) Import of capital goods including payment towards import of services, technical know-how and license fees, provided the same are part of these capital goods. b) Local sourcing of capital goods. c) New project.
d) Modernisation /expansion of existing units. e) Overseas direct investment in Joint ventures (JV)/ Wholly owned subsidiaries (WOS). f) Acquisition of shares of public sector undertakings at any stage of disinvestment under the disinvestment programme of the Government of India. g) Refinancing of existing trade credit raised for import of capital goods. h) Payment of capital goods already shipped / imported but unpaid
End use for refinancing of domestic Rupee loans is permitted only if the ECB is from foreign equity holders with a MAMP of 5 years.
All-in-Cost : 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. The payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost. The all-in-cost ceilings for ECB are reviewed from time to time. The RBI has provided few clarifications in relation to AIC, which are as follows:
(i) It has been clarified that Export Credit Agency charges and guarantee fees, whether paid in Rupees or foreign currency, will be included in AIC; and
(ii) Various components of AIC have to be paid by the borrower without taking recourse to the drawdown of ECB i.e. ECB proceeds cannot be used for payment of interest/charges.
Raising of ECB by Start-ups: Any entity recognized by the Central Government as a ‘start-up’ is allowed to raise ECB up to USD 3 million (approx. INR 21 crores) or equivalent per financial year. The AIC can be mutually agreeable between the borrower and the lender. This is in line with the earlier ECB framework. It has been clarified that start ups under the special dispensation or other start ups which are eligible to receive FDI, can also raise ECB under the general ECB Framework.
Raising of ECB by Entities under Restructuring: Any entity which is under restructuring scheme/ corporate insolvency resolution process (‘CIRP’) under the Insolvency and Bankruptcy Code, 2016 (‘IBC’) can raise ECB only if specifically permitted under the resolution plan. Further, pursuant to a circular dated February 7, 2019, RBI has relaxed end-use restrictions for resolution applicants under CIRP and has allowed raising ECBs from recognised lenders (except branches / overseas subsidiaries of Indian banks) under the approval route for repayment of Rupee term loans of such entities.
End-uses not permitted. There has been no change to the negative list of end-uses prescribed by the RBI except the clarification on negative end use of ‘real estate activities’. Earlier, the ECB Regulations specified that ECB could not be availed for investment in real estate or purchase of land. While real estate activities continue to be a prohibited end-use for availing ECBs, the Circular now defines ‘real estate activities’ to mean any real estate activity involving owned or leased property for buying, selling and renting of commercial and residential properties or land and also includes activities either on a fee or contract basis assigning real estate agents for intermediating in buying, selling, letting or managing real estate.
Foreign Currency Convertible Bond (FCCBs)
A foreign currency convertible bond (FCCB) is a type of corporate bond issued by an Indian company in an overseas market in a currency different from that of the issuer. Investors have the option of redeeming their investment on maturity or converting the bonds into equity any time during the currency of the bond. The repayment of the principal is in the currency in which the money is raised. In case of a foreign currency exchangeable bond (FCEB), investors have the option of converting the bonds into equity of the offered company. The company issuing FCEB shall be part of the promoter group of the offered company and shall hold the equity shares being offered at the time of issuance of FCEB.
What’s C&M Capital Resources Offers
We are successfully engaged in rendering services of External Commercial Borrowings. Many individuals and companies have made full use of this service to boost their business venture.
Here we will arrange you the External Commercial Borrowings (ECB), once you qualify our predefined criteria such as Good Project Report, Good Financial Statements, and Promoters Track Records etc. We can arrange for best deals for ECB requirements of the corporate both in terms of interest rates and other commercial terms.
The financial assistance provided through this service is available with full professional competency and that also at comparatively reduced interest rates. That is why our Commercial Borrowings services are the most sought after services we render in the market. And for these reason we have also revolutionized the sector of Commercial Borrowings in India.