Violation of ECB provisions mandates RBI approval route, instead of automatic route & SEZ can avail for devlopment now

Attention of Authorized Dealer Category - I (AD Category - I) banks is invited to the A.P. (DIR Series) Circular No. 46 dated January 2, 2009 relating to External Commercial Borrowings (ECB).

On a review, it has been decided to modify some aspects of the ECB policy vide RBI/2008-09/517 A.P. (DIR Series) Circular No.71 dated 30th June 2009 as indicated below:

(i) ECB for Integrated Township
As per the extant policy, corporates, engaged in the development of integrated township, as defined in Press Note 3 (2002 Series) dated January 04, 2002, issued by DIPP, Ministry of Commerce & Industry, Government of India are permitted to avail of ECB, under the Approval route, until June 2009 [which is extended to 31st December 2009], still under RBI approval route.

(ii) ECB for NBFC sector
As per the current ECB norms, Non-Banking Finance Companies (NBFCs), which are exclusively involved in financing of the infrastructure sector, are permitted to avail of ECBs from multilateral / regional financial institutions and Government owned development financial institutions for on-lending to the borrowers in the infrastructure sector under the Approval route, subject, inter-alia, to the condition that the direct lending portfolio of these lenders vis-à-vis their total ECB lending to NBFCs, at any point of time, should not be less than 3:1 [the ratio is dispensed from 1st July 2009], still under RBI approval route.

(iii) ECB for Development of Special Economic Zone
As per the extant guidelines, ECB is permissible for the Infrastructure sector, which is defined as (i) power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects) and (viii) mining, refining and exploration. Further, units in the Special Economic Zone (SEZ) are also permitted to access ECBs for their own requirements. However, ECB is not permissible for the development of SEZ. It has now been decided to allow SEZ developers also to avail of ECB under the Approval route for providing infrastructure facilities, as defined in the ECB policy, within the SEZ. However, ECB shall not be permissible for development of integrated township and commercial real estate within the SEZ.

(iv) Corporates under Investigation
Currently, the ECB policy is not explicit about accessing of ECB by the corporates, which have violated the extant ECB policy and are under investigation by the Reserve Bank and / or Directorate of Enforcement. It is clarified that corporates, which have violated the extant ECB policy and are under investigation by Reserve Bank and / or by Directorate of Enforcement, will not be allowed to access the Automatic route for ECB. Any request by such corporates for ECB will be examined under the Approval route.

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[FEMA-ECB] No Objection (NoC) from Category I Authorised Dealer for Creation of Charge or Issue of Guarantee, though Borrower has the Choice of Security to be issued

Amendments to the ECB guidelines VIDE RBI/2008-09/92 A. P. (DIR Series) Circular No. 01 dated 11^th July 2008, which shall come into force with immediate effect, subject to review from time to time.

Under the extant ECB guidelines, the choice of security to be provided to the overseas lender / supplier for securing ECB is left to the borrower. However, creation of charge over immoveable assets and financial securities, such as shares, in favour of the overseas lender is subject to Regulation 8 of Notification No. FEMA 21/RB-2000 dated May 3, 2000 and Regulation 3 of Notification No. FEMA 20/RB-2000 dated May 3, 2000, respectively, as amended from time to time.

Now, it is resolved to get "No Objection Certificate" [NoC] from Category - I Authorised Dealer for

(a)                 (a) Creation of Charge on Immovable Assets

(b) Creation of Charge over Financial Securities

(c) Issue of Corporate or Personal Guarantee

AD Category – I banks may invariably specify that the 'no objection' is issued from the foreign exchange angle under the provisions of FEMA, 1999 and should not be construed as an approval by any other statutory authority or Government under any other laws / regulations. If further approval or permission is required from any other regulatory / statutory authority or Government under the relevant laws / regulations, the applicant should take the approval of the authority concerned before undertaking the transaction. Further, the 'no objection' should not be construed as regularizing or validating any irregularities, contravention or other lapses, if any, under the provisions of FEMA or any other laws or regulations.

Hence, following steps to be considered:

Step 1: AD Category - I banks may ensure and satisfy themselves that

(i)             the underlying ECB is strictly in COMPLIANCE with the extant ECB guidelines;

(ii)            there exists a security clause in the Loan Agreement REQUIRING the borrower to create charge on immovable assets / financial securities / furnish corporate or personal guarantee;

(iii)           the loan agreement has been SIGNED by both the lender and the borrower, and

(iv)          the borrower has obtained Loan Registration Number (LRN) from the Reserve Bank.

Step 2: In case of, Creation of Charge on Immovable Assets

(i)             'No objection' shall be granted only to a RESIDENT ECB borrower.

(ii)            The period of such charge on immovable assets has to be CO-TERMINUS with the maturity of the underlying ECB. [Period of Charge = Maturity of such ECB]

(iii)           Such 'no objection' should NOT be construed as a PERMISSION to acquire immovable asset (property) in India, by the overseas lender / security trustee.

(iv)          In the event of enforcement / invocation of the charge, the immovable asset (property) will have to be SOLD only to a person resident in India [PRII] and the sale proceeds shall be REPATRIATED to liquidate the outstanding ECB.

Step 3: In case of, Creation of Charge over Financial Securities [Pledge of Shares, etc…]

(i)             The period of such pledge shall be CO-TERMINUS with the maturity of the underlying ECB. [Period of Charge = Maturity of such ECB]

(ii)            In case of INVOCATION of pledge, transfer shall be in accordance with the extant FDI policy. 

(iii)           A CERTIFICATE from the Statutory Auditor of the company that the ECB proceeds have been / will be utilized for the permitted end-use/s.

Step 4: In case of, Issue of Corporate or Personal Guarantee

i)              BOARD RESOLUTION for issue of corporate guarantee from the company issuing such guarantees, specifying names of the officials authorised to execute such guarantees on behalf of the company or in individual capacity.

ii)             Specific REQUESTS from individuals to issue personal guarantee indicating DETAILS of the ECB.

iii)            Ensuring that the period of such corporate or personal guarantee is CO-TERMINUS with the maturity of the underlying ECB. [Period of Guarantee = Maturity of such ECB]

Step 5: AD Category - I banks to give 'NoC', on completing the above formalities

AD Category - I banks to CONVEY 'no objection' under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower.

[FEMA]BuyBack FCCB@15%/25% discount under Automatic/Approval Route now

Buyback / Prepayment of Foreign Currency Convertible Bonds (FCCBs) RBI/2008-09/317 A. P. (DIR Series) Circular No. 39 dated December 08, 2008 To, All Category - I Authorised Dealer Banks Madam / Sir, Buyback / Prepayment of Foreign Currency Convertible Bonds (FCCBs) Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to Regulation No. 21 of Part III and Schedule I to the Notification No. FEMA 120 /RB-2004 dated July 7, 2004, as amended from time to time, relating to FCCBs. Attention of AD Category - I banks is also invited to A. P. (DIR Series) Circular No.5 dated August 1, 2005, A. P. (DIR Series) Circular No.60 dated May 21, 2007, A. P. (DIR Series) Circular No. 4 dated August 7, 2007, A. P. (DIR Series) Circular No. 43 dated May 29, 2008, A.P. (DIR Series) No. 16 dated September 22, 2008, A. P. (DIR Series) Circular No.20 dated October 10, 2008 and A. P. (DIR Series) No. 26 dated October 22, 2008 relating to instructions / guidelines in respect of External Commercial Borrowings, which are also applicable, mutatis mutandis, to FCCBs. 2. Under the extant ECB Guidelines, AD Category - I banks are permitted to allow prepayment of ECB up to USD 500 million without prior approval of the Reserve Bank, subject to compliance with the stipulated minimum average maturity period as applicable to the loan. Further, existing ECB can be refinanced by raising a fresh ECB, subject to the conditions that the fresh ECB is raised at a lower all-in-cost and the outstanding maturity of the original ECB is maintained. The existing provisions for prepayment and refinancing will continue, as hitherto. 3. As announced in para 4 (v) of the Press Release 2008:2009/697 dated November 15, 2008, Reserve Bank has been considering proposals, under the approval route, from Indian companies for buyback of their FCCBs, provided the buyback is financed out of their foreign currency resources held in India or abroad and / or out of fresh external commercial borrowing (ECB) raised in conformity with the current ECB norms. 4. As announced in para 12 of the Press Release 2008-2009/842 dated December 6, 2008, the existing policy on the premature buyback of FCCBs has been reviewed and it has been decided to liberalise the procedure and consider applications for buyback of FCCBs by Indian companies, both under the automatic and approval routes, as detailed hereunder: A. Automatic Route: The designated AD Category - I banks may allow Indian companies to prematurely buyback FCCBs, subject to compliance with the terms and conditions set out hereunder : i) the buyback value of the FCCB shall be at a minimum discount of 15 per cent on the book value; ii) the funds used for the buyback shall be out of existing foreign currency funds held either in India (including funds held in EEFC account) or abroad and / or out of fresh ECB raised in conformity with the current ECB norms; and iii) where the fresh ECB is co-terminus with the outstanding maturity of the original FCCB and is for less than three years, the all-in-cost ceiling should not exceed 6 months Libor plus 200 bps, as applicable to short term borrowings. In other cases, the all-in-cost for the relevant maturity of the ECB, as laid down in A. P. (DIR Series) No.26 dated October 22, 2008 shall apply. B. Approval Route: The Reserve Bank will consider proposals from Indian companies for buyback of FCCBs under the approval route, subject to compliance with the following conditions: i) the buyback value of the FCCB shall be at a minimum discount of 25 per cent on the book value; ii) 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; and iii) the total amount of buyback shall not exceed USD 50 million of the redemption value, per company. Applications complying with the above conditions may be submitted, together with the supporting documents, through the designated AD Category - I bank, to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, ECB Division, Central Office, 11th Floor, Central Office Building, Shahid Bhagat Singh Road, Mumbai-400 001, for necessary approval. 5. General Conditions In addition to the conditions set out above, the following additional conditions shall be applicable for the proposals both under the automatic and approval routes: (i) The FCCB should have been issued in compliance with the extant guidelines. (ii) The FCCB should have been registered with the Reserve Bank; the LRN number obtained and ECB 2 returns submitted up to date. (iii) No proceedings for contravention of FEMA are pending against the company. (iv) The right for buyback is vested with the issuer of FCCBs. However, the actual buyback is subject to the consent of the bond holders. (v) The FCCBs bought back / repurchased from the holders must be cancelled and should not be re-issued or re-sold. (vi) The buyback will not have any effect on the bond holders not opting for the buyback or on the non-participating bond holders of companies opting for the buyback. (vii) The Indian company shall open an escrow account with the branch or subsidiary of an Indian bank overseas or an international bank for buying back the FCCBs to ensure that the funds are used only for the buyback. 6. The existing requirement of submission of ECB 2 return will continue as hitherto. Further, on completion of the buyback, a report giving details of buyback, such as, the outstanding amount of FCCBs, book value of FCCBs bought back, rate at which FCCBs bought back, amount involved, and source/s of funds may be submitted, through the designated AD Category - I bank, to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, ECB Division, Central Office, 11th Floor, Central Office Building, Shahid Bhagat Singh Road, Mumbai-400 001. 7. This facility will come into force with immediate effect and the entire procedure of buyback should be completed by March 31, 2009. 8. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers concerned. 9. The directions contained in this circular have been issued under sections 10(4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law. Yours faithfully, (Salim Gangadharan) Chief General Manager-in-Charge

[ECB] rupee expenditure, rupee accounts, 3G spectrum & revised all-in-cost

Dear All,

Amendment of ECB Guidelines vide AP DIR Circular No.26 dated 22^nd Oct 2008 by RBI:

Change in end use restriction:

Prior to this amendment, borrowers in the infrastructure sector are allowed to avail ECB up to USD 100 million per financial year for Rupee expenditure for permissible end-uses under the Approval Route. Considering the huge funding requirements of the sector, particularly for meeting Rupee expenditure, the existing limit of USD 100 million has been raised to USD 500 million per financial year for the borrowers in the infrastructure sector for Rupee expenditure under the Approval Route. Provided ECBs in excess of USD 100 million for Rupee expenditure should have a minimum average maturity period of 7 years:

To ease liquidity pressure in the system henceforth, ECB up to USD 500 million per borrower per financial year would be permitted for Rupee expenditure and / or foreign currency expenditure for permissible end - uses under the Automatic Route. Accordingly, the requirement of minimum average maturity period of seven years for ECB more than USD 100 million for Rupee capital expenditure by the borrowers in the infrastructure sector has been dispensed with.

In order to further develops the telecom sector in the country, payment for obtaining license/permit for 3G Spectrum will be considered an eligible end - use for the purpose of ECB.

Change in parking of ECB proceeds in overseas:

At present, ECB proceeds are required to be parked overseas until actual requirement in India and such proceeds can be invested in the following liquid assets (a) deposits or certificate of deposit offered by banks rated not less than AA (-) by Standard and Poor / Fitch IBCA or Aa3 by Moody's; (b) deposits with overseas branch of an AD bank in India; and (c) Treasury bills and other monetary instruments of one year maturity having minimum rating as indicated above.

It has now been decided that henceforth the borrowers will be extended the flexibility to either keep these funds off-shore as above or keep it with the overseas branches / subsidiaries of Indian banks abroad or to remit these funds to India for credit to their Rupee accounts with AD Category I banks in India, pending utilisation for permissible end-uses. However, as hitherto, the rupee funds will not be permitted to be used for investment in capital markets, real estate or for inter-corporate lending.

Change in All in Cost:

In view of the tight liquidity conditions in the International financial markets, it has been decided to rationalize and enhance the all-in-cost ceilings as under:

Average Maturity Period	All-in-Cost ceiling over 6 months LIBOR*
	Exisitng	Revised
Three years and up to five years	200 bps	300 bps
More than five years and up to seven years	350 bps	500 bps
More than seven years	450 bps	500 bps

* for the respective currency of borrowing or applicable benchmark.

The all-in-cost ceilings will be reviewed from time to time depending on the conditions in the international financial markets.

Keeping in view the risks associated with unhedged foreign exchange exposures of SMEs, a system of monitoring such unhedged exposures by the banks on a regular basis is being put in place.

The said amendments to the ECB guidelines will come into force with immediate effect.

All other aspects of ECB policy such as USD 500 million limit per company per financial year under the Automatic Route, eligible borrower, recognised lender, end-use, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.

Thanks & Regards
Alagar
CSchennai
Karvy - Merchant Banking
Contact: 919790906827

[USD20million to USD50/100million] External Commercial Borrowing (ECB) policy liberalisation [amendment]

RBI/2007-08/339 A.P.(DIR Series) Circular No.43

To

All Category-I Authorised Dealer Banks

Madam/Sir,

External Commercial Borrowings Policy: Liberalisation

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to the A. P. (DIR Series) Circular No. 5 dated August 1, 2005, A. P. (DIR Series) Circular No. 60 dated May 21, 2007 and A. P. (DIR Series) Circular No. 4 dated August 7, 2007 relating to External Commercial Borrowings (ECB).

2. Based on a review, it has been decided to modify some aspects of the ECB policy as indicated below:

(a) At present, borrowers proposing to avail ECB up to USD 20 million for Rupee expenditure for permissible end-uses require prior approval of the Reserve Bank under the Approval Route. It has been decided that, henceforth,

(i) borrowers in infrastructure sector may avail ECB up to USD 100 million for Rupee expenditure for permissible end-uses under the Approval Route;

(ii) 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.

(b) The all-in-cost ceilings in respect of ECB are modified as follows:

Average Maturity Period	All-in-Cost ceilings over 6 Months LIBOR*
	Existing	Revised
Three years and up to five years	150 bps	200 bps
More than five years	250 bps	350 bps

s* for the respective currency of credit or applicable benchmark

The above changes will apply to ECB both under the automatic route and the approval route.

3. This amendment to ECB guidelines will come into force with immediate effect. All other aspects of ECB policy such as USD 500 million limit per company per year under the Automatic Route, eligible borrower, recognised lender, end-use of foreign currency expenditure for import of capital goods and overseas investments, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.

4. Necessary amendments to the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 dated May 3, 2000 are being issued separately.

5. AD Category-I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

6. The directions contained in this circular have been issued under sections 10(4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.

[ECB]corporates in service sector under automatic route&any all-in-cost ceiling, NBFCinfrastructure finance with approval

1. RBI has liberalized the ECB policy by dispensing with the requirement of all-in-cost ceilings on ECB until June 30, 2009. However eligible borrowers, proposing to avail of ECB beyond the permissible all-in-cost ceilings as mentioned below may approach the Reserve Bank under the Approval Route.

Ceilings under Automatic Route:

2. Development of integrated township [as in Press Note 3 (2002 Series) dated January 04, 2002] is now a permissible end-use of ECB unless reviewed in 30th June 2009. Integrated township includes housing, commercial premises, hotels, resorts, city and regional level urban infrastructure facilities such as roads and bridges, mass rapid transit systems and manufacture of building materials. Development of land and providing allied infrastructure forms an integrated part of township's development.

The minimum area to be developed should be 100 acres for which norms and standards are to be followed as per local bye-laws / rules. In the absence of such bye-laws/rules, a minimum of two thousand dwelling units for about ten thousand population will need to be developed.

3. ECB by Non-Banking Financial Companies (NBFCs) exclusively involved in financing of the infrastructure sector, to avail of ECBs from multilateral / regional financial institutions and Government owned development financial institutions for on-lending to the borrowers in the infrastructure sector under the Approval route.

The direct lending portfolio of the above lenders vis-à-vis their total ECB lending to NBFCs, at any point of time should not be less than 3:1. AD Category - I banks should obtain a certificate from the eligible lenders to this effect. This facility will be reviewed in June 2009.

4. Corporates in the Hotels, Hospitals and Software sectors to avail of ECB up to USD 100 million per financial year, under the Automatic Route, for foreign currency and / or Rupee capital expenditure for permissible end-use. The proceeds of the ECBs should not be used for acquisition of land. ECB by other entities in Hotels, Hospitals and Software sector continue to remain under Approval Route as earlier.

5. Necessary amendments to the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 dated May 3, 2000 are being issued separately

Pl. find atached RBI/2008-09/343 A.P. (DIR Series) Circular No. 46 dated January 2, 2009 for details.

Click here for erstwhile ECB amendment.

ECB NBFC & Spectrum amended w.e.f December 2009 & others applicable from 1st January 2010 – RBI FEMA Notification

On a review of the prevailing macroeconomic conditions and developments in international financial markets, it has been decided to modify some aspects of the ECB policy as indicated below:

AMENDMENTS WITH IMMEDIATE EFFECT

(i) ECB for the NBFC Sector

As per the current ECB norms, Non-Banking Finance Companies (NBFCs), which are exclusively involved in the financing of the infrastructure sector, are permitted to avail of ECBs from multilateral / regional financial institutions and Government owned development financial institutions for on-lending to the borrowers in the infrastructure sector under the approval route.  In view of the thrust  given to development of infrastructure sector, it has been decided with immediate effect to allow NBFCs exclusively involved in financing the infrastructure projects to avail of ECB from the recognized lender category including international banks under the approval route, subject to complying with the prudential standards prescribed by the Reserve Bank and the borrowing entities fully hedging their currency risk. The AD Category-I bank should certify the compliance with the prudential norms by the borrowing NBFCs.

(ii) ECB for Spectrum in the Telecommunication Sector

As per the extant policy, as indicated in A.P. (DIR Series) Circular No. 26 dated October 22, 2008, payment for obtaining license/permit for 3G Spectrum is considered an eligible end - use for the purpose of ECB under the automatic route. It has now been decided to permit eligible borrowers in the telecommunication sector to avail of ECB for the purpose of payment for Spectrum allocation. This modification will come into effect with immediate effect.

AMENDMENTS WITH EFFECT FROM 1ST JANUARY 2010

(i) All-in-cost ceilings

As per the extant policy, the all-in-cost ceilings have been dispensed with, under the approval route, until December 31, 2009. In view of the improvement in the credit market conditions and narrowing credit spreads in the international markets, it has been decided to withdraw the existing relaxation in the all-in-cost ceilings under the approval route with effect from January 1, 2010. Accordingly, the all-in-cost ceilings under the approval route for the ECBs, where Loan Agreements have been signed on or after January 1, 2010 will be as under:

Average Maturity Period	All -in-cost Ceilings over six month Libor*
3 – 5 years	300 basis points
Over 5 years	500 basis points

*for the respective currency of borrowing or applicable benchmark.

Eligible borrowers proposing to avail of ECB after December 31, 2009, where the Loan Agreement has been signed on or before December 31, 2009 and where the all-in-cost exceed the above ceilings, should furnish a copy of the Loan Agreement. Such proposals would continue to be considered under the approval route.

(ii) Integrated township

As per the extant policy, corporates, engaged in the development of integrated township, as defined in Press Note 3 (2002 Series) dated January 04, 2002, issued by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India are permitted to avail of ECB, under the approval route, until December 31, 2009. On a review of the prevailing conditions, it has been decided to extend the current policy until December 31, 2010, under the approval route. All other terms and conditions, stipulated in the A.P. (DIR Series) Circulars referred to above, remain unchanged.

iii) Buyback of the Foreign Currency Convertible Bonds (FCCBs)

In terms of A.P. (DIR Series) Circular No. 39 dated December 8, 2008, read with A.P. (DIR Series) Circular No. 58 dated March 13, 2009 and A.P. (DIR Series) Circular No. 65 dated April 28, 2009, Indian companies have been allowed to buyback their Foreign Currency Convertible Bonds (FCCBs) both under the automatic route and approval route until December 31, 2009. Keeping in view the prevailing macroeconomic conditions and global developments, especially the improvements in the stock prices, it has been decided to discontinue the facility with effect from January 1, 2010.

Source: RBI/2009-10/252 A.P. (DIR Series) Circular No.19 dated 9th December 2009

No prior RBI approval for ECB changes: Name of Borrower or Currency or Repayment or Bank after allotment of LRN, if other Terms are same

External Commercial Borrowings (ECB) Policy – Liberalisation vide RBI/2009-10/311 A. P. (DIR Series) Circular No.33 dated 9th February 2010
As per the extant ECB procedures, any changes or amendment in the terms and conditions of the ECB after obtaining the Loan Registration Number (LRN) from the Department of Statistics and Information Management (DSIM), Reserve Bank, require the prior approval of the Reserve Bank. Accordingly, the requests of the borrowers for changes in the terms and conditions, such as, drawdown / repayment schedules, currency of borrowing and changes in designated AD bank, name of the borrowing company, etc. are referred to the Reserve Bank for necessary approval.

As a measure of simplification of the existing procedures, it has been decided to delegate powers to the designated AD category-I banks to approve the following requests from the ECB borrowers, subject to specified conditions:
a) Changes / modifications in the drawdown / repayment schedule (maintaining Average Maturity Period)
Designated AD Category – I banks may approve changes / modifications in the drawdown / repayment schedule of the ECBs already availed, both under the approval and the automatic routes, subject to the condition that the average maturity period, as declared while obtaining the LRN, is maintained. The changes in the drawdown / repayment schedule should be promptly reported to the DSIM, Reserve Bank in Form 83. However, any elongation / rollover in the repayment on expiry of the original maturity of the ECB would require the prior approval of the Reserve Bank.
b) Changes in the currency of borrowing (with same terms)
Designated AD Category I banks may allow changes in the currency of borrowing, if so desired, by the borrower company, in respect of ECBs availed of both under the automatic and the approval routes, subject to all other terms and conditions of the ECB remaining unchanged. Designated AD banks should, however, ensure that the proposed currency of borrowing is freely convertible.
c) Change of the AD bank (with NoC & Due Diligence)
Designated AD Category - I banks may allow change of the existing designated AD bank by the borrower company for effecting its transactions pertaining to the ECBs subject to No-Objection Certificate (NOC) from the existing designated AD bank and after due diligence.
d) Changes in the name of the Borrower Company  (with Evidence)
Designated AD Category - I banks may allow changes in the name of the borrower company subject to production of supporting documents evidencing the change in the name from the Registrar of Companies (Name Approval Letter [pursuant to e-form 1A] with Fresh Certificate of Incorporation [pursuant to e-form 1B]).

The modifications to the ECB guidelines will come into force with immediate effect.

To know, all about ECB http://yehseeyes.blogspot.com/search/label/RBI%20FEMA%20ECB

IFC, the new NBFC under ECB approval route upto 50% NOF subject to RBI compliances & hedging full currency risk

Why all this?

In view of the thrust given to the development of the infrastructure sector, a separate category of NBFCs viz. Infrastructure Finance Companies (IFCs) has been introduced in terms of the guidelines contained in DNBS Notification.  In view of the new category of NBFCs being in place, the dispensation provided in “Old Position” below is not considered necessary.

New Position

Accordingly, proposals for External Commercial Borrowings (ECBs) by the IFCs, which have been classified as such by the Reserve Bank, for on-lending to the infrastructure sector, as defined in the extant ECB policy may be considered under the approval route, subject to their complying with the following conditions:

i) compliance with the norms prescribed in the aforesaid DNBS Circular dated February 12, 2010;
ii) hedging of the currency risk in full; and
iii) the total outstanding ECBs including the proposed ECB not exceeding 50 % of the Owned Funds.

Old Position

As per the extant ECB policy, Non-Banking Finance Companies (NBFCs), which are exclusively engaged in financing of infrastructure sector, are permitted to avail of ECB from the recognized lender category including international banks, under the approval route, for on- lending to the infrastructure sector, as defined in the extant ECB policy.

Source: A.P. (DIR Series) Circular No.39 dated 2nd March 2010

To know all about ECB notifications, visit http://yehseeyes.blogspot.com/search?q=ECB

Spend Rupees for Spectrum Allocation,get it refinanced with ECB within 12months under Government Route, RBI says in addition to exisitng Automatic route

RBI/2009-10/ 292 dated January 25, 2010 vide A.P. (DIR Series) Circular No. 28

As per the existing ECB policy, eligible borrowers in the telecommunication sector are permitted to avail of ECB for the purpose of payment for spectrum allocation, under the automatic route. Keeping in view the large outlay of funds required to be paid directly to the Government within a limited period of time, it has been decided to make a one-time relaxation in the end-use conditions of the ECB policy.

Accordingly, the payment for spectrum allocation may initially be met out of Rupee resources by the successful bidders, to be refinanced with a long-term ECB, under the Government approval route, subject to the following conditions:
i) The ECB should be raised within 12 months from the date of payment of the final installment to the Government;
ii) The designated AD - Category I bank should monitor the end-use of funds;
iii) Banks in India will not be permitted to provide any form of guarantees; and
iv) All other conditions of ECB, such as eligible borrower, recognized lender, all- in-cost, average maturity, etc, should be complied with.

 

Eligible borrowers in the telecommunications sector proposing to fund the payment for Spectrum allocation directly out of the proceeds of the ECBs may continue to avail of the ECBs under the automatic route as per the existing policy.

Click here to track all the External Commercial Borrrowing related Updates

[FEMA-ECB] Infrastructure sector upto USD 500 million & 7 years for USD > 100 million

RBI/2008-09/ 190 A. P. (DIR Series) Circular No. 16 dated September 22, 2008

Erstwhile ECB Limits

The all-in-cost ceilings for ECBs are modified as follows:

Average Maturity Period	All-in-Cost ceilings over 6 Months LIBOR*
	Existing	Revised
Three years and up to five years	200 bps	200 bps
More than five years and up to seven years	350 bps	350 bps
More than seven years [mandatory for USD in EXCESS of 100 million] Borrowers in the infrastructure sector can avail ECB UPTO 500 million per financial year under Approval Route	350 bps	450 bps
* for the respective currency of borrowing or applicable benchmark

The amendments to the ECB guidelines will come into force with immediate effect.

At present, borrowers in the infrastructure sector are allowed to avail ECB up to USD 100 million per financial year for Rupee expenditure for permissible end-uses under the Approval Route. Considering the huge funding requirements of the sector, particularly for meeting Rupee expenditure, the existing limit of USD 100 million has been raised to USD 500 million per financial year for the borrowers in the infrastructure sector for Rupee expenditure under the Approval Route. ECBs in excess of USD 100 million for Rupee expenditure should have a minimum average maturity period of 7 years.

All other aspects of the ECB policy such as USD 500 million limit per borrower per financial year under the Automatic Route, eligible borrower, recognised lender, end-use of foreign currency expenditure for import of capital goods and overseas investments, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged. The existing limit of USD 50 million for Rupee expenditure under the Approval Route for borrowers other than those in the infrastructure sector also remains unchanged.

[FEMA]ECB by Services Sector <= USD 100million - Approval Route

Dear All,

 

External Commercial Borrowings (ECB) by Services Sector -Liberalization

As per present ECB guidelines, borrowers in the services sector are not eligible to avail ECB under the Automatic Route.

Vide A P. (DIR Series) Circular No. 46 dated 2^nd June 2008, It has been decided, in consultation with the Government of India, to allow entities in the service sector viz. hotels, hospitals and software companies to avail ECB up to USD 100 million, per financial year, for the purpose of import of capital goods under the Approval Route. All other aspects of ECB policy shall remain unchanged.

It is also clarified that the existing guidelines on trade credit, allowing companies including those in the services sector, to avail trade credit up to USD 20 million per import transaction, for a period less than 3 years, for import of capital goods, shall continue.

This amendment to ECB guidelines will come into force with immediate effect.

Necessary amendments to the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 dated May 3, 2000 are being issued separately.

Also you can refer earlier AP DIR Circulars (A. P. (DIR Series) Circular No. 87 dated April 17, 2004].  A. P. (DIR Series) Circular No. 5 dated August 1, 2005 for your better understanding.

Thanks & Regards
--
Alagar
Investment Banking
Karvy Investor Services Limited
Chennai
Tel: 044-28151034/3445/3658
Moble: 919884731993/ 919790906827
e-mail: alagar.muthu@karvy.com

Takeout Financing: refinancing of domestic Rupee loans with ECB under RBI approval route

As per the extant norms, refinancing of domestic Rupee loans with External Commercial Borrowing (ECB) is not permitted. However, keeping in view the special funding needs of the infrastructure sector, it has been decided to review the ECB policy and put in place a scheme of take-out finance. Accordingly, it has been decided to permit take-out financing arrangement through ECB, under the approval route, for refinancing of Rupee loans availed of from the domestic banks by eligible borrowers in the sea port and airport, roads including bridges and power sectors for the development of new projects, subject to the following conditions:

1. The corporate developing the infrastructure project should have a tripartite agreement with domestic banks and overseas recognized lenders for take-out of the loan within three years of the scheduled Commercial Operation Date (COD). The scheduled date of occurrence of the take-out should be clearly mentioned in the agreement.
2. The loan should have a minimum average maturity period of 7 years.
3. The domestic bank financing the infrastructure project should comply with the extant prudential norms relating to take-out financing.
4. The fee payable to the overseas lender until the take-out shall not exceed 100 bps per annum.
5. On take-out, the residual loan agreed to be taken- out by the overseas lender would be considered as ECB and the loan should be designated in a convertible foreign currency and all extant norms relating to ECB should be complied with, including the reporting arrangements.
6. Domestic banks / Financial Institutions will not be permitted to guarantee the take-out finance and further it will not be allowed to carry any obligation on its balance sheet after the occurrence of the take-out event.

Source: A.P.(DIR Series) Circular No.04 dated 22nd July 2010

New Infrastructure sector definition for ECB to include Cold storage at agricultural & allied levels

Why all this?

As announced in para 54 of the Union Budget for the Year 2010-11, it has been decided to expand the definition of infrastructure sector for the purposes of External Commercial Borrowings (ECB).

New Definition of “Infrastructure Sector”

The infrastructure sector would henceforth be defined to include (i) power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects), (viii) mining, exploration and refining and (ix) cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.

Old Definition of “Infrastructure Sector”

As per the extant ECB policy, infrastructure sector is defined as (i) power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects) and (viii) mining, exploration and refining.

Source: A.P. (DIR Series) Circular No.38 dated 2nd March 2010

To know all about ECB, visit http://yehseeyes.blogspot.com/search?q=ECB

[ECB]All-in-cost ceilings dispensed till 31st December 2009 under Approval Route

RBI/2008-09/460 A.P. (DIR Series) Circular No. 64 dated 28th April 2009

Now, it has been decided to extend the relaxation in all–in-cost  ceilings, under the approval route,  until December 31, 2009. This relaxation will be reviewed in December 2009.

 

Erstwhile provision: Click here

It was decided earlier to dispense with the requirement of all-in-cost ceilings on ECB, under the approval route, until June 30, 2009. Accordingly, eligible borrowers, proposing to avail of ECB beyond the prescribed all-in-cost ceilings could approach the Reserve Bank, under the approval route.

 

To read all about ECB, click here.

 

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ECB beyond USD 100 million under RBI Approval Route for service sector available for permissible end uses, not being acquisition of land

At present, entities in the services sectors viz., Hotels, Hospitals and Software  are allowed to avail of ECB up to USD 100 million per financial year under the  Automatic Route, for foreign currency and/or Rupee capital expenditure for permissible end-uses. On a review, it has now been decided to consider applications  from the corporates in the Hotel, Hospital and Software sectors to avail of ECB beyond USD 100 million under the Approval Route, for foreign currency and / or Rupee capital expenditure for permissible end-uses. The proceeds of the ECB should not be used for acquisition of land.

Source: A.P. (DIR Series) Circular No.08 dated 12th August 2010

Debentures/Bonds by Indian Infrastructure companies to Non Resident Entities following ECB (structured obligations/novated loans)

External Commercial Borrowings (ECB) Policy – Structured Obligations
Borrowing and lending of Indian Rupees between two persons resident in India does not attract the provisions of the Foreign Exchange Management Act, 1999. In case where a Rupee loan is granted against the guarantee provided by a person resident outside India, there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The Reserve Bank vide Notification No. FEMA 29/2000-RB dated September 26, 2000 has granted general permission to a person resident in India, being a principal debtor, to make payment to a person resident outside India, who has met the liability under a guarantee.

As per the extant policy, domestic Rupee denominated structured obligations have been permitted to be credit enhanced by non-resident entities under the approval route. In view of the growing needs of funds in the infrastructure sector, the existing norms have been reviewed and it has been decided to put in place a comprehensive policy framework on credit enhancement to domestic debt as indicated below.

It has since been decided that the facility of credit enhancement by eligible non-resident entities may be extended to domestic debt raised through issue of capital market instruments, such as debentures and bonds, by Indian companies engaged exclusively in the development of infrastructure and by the Infrastructure Finance Companies (IFCs), which have been classified as such by the Reserve Bank in terms of the guidelines contained in the circular DNBS.PD. CC No. 168 / 03.02.089 / 2009-10 dated February 12, 2010, subject to the following conditions:
i) credit enhancement will be permitted to be provided by multilateral / regional financial institutions and Government owned development financial institutions;
ii) the underlying debt instrument should have a minimum average maturity of 7 years;
iii) prepayment and call / put options would not be permissible for such capital market instruments up to an average maturity period of 7 years;
iv) guarantee fee and other costs in connection with credit enhancement will be restricted to a maximum 2% of the principal amount involved;
v) on invocation of the credit enhancement, if the guarantor meets the liability and if the same is permissible to be repaid in foreign currency to the eligible non-resident entity, the all-in-cost ceilings, as applicable to the relevant maturity period of the Trade Credit / ECBs, would apply to the novated loan. Presently, the all-in-cost ceilings, depending on the average maturity period, are applicable as follows:

vi) In case of default and if the loan is serviced in Indian Rupees, the applicable rate of interest would be the coupon of the bonds or 250 bps over the prevailing secondary market yield of 5 years Government of India security, as on the date of novation, whichever is higher;
vii) IFCs proposing to avail of the credit enhancement facility should comply with the eligibility criteria and prudential norms laid down in the circular DNBS.PD.CC No.168 / 03.02.089 / 2009-10 dated February 12, 2010 and in case the novated loan is designated in foreign currency, the IFC should hedge the entire foreign currency exposure; and
viii) The reporting arrangements as applicable to the ECBs would be applicable to the novated loans.

Source: RBI A.P. (DIR Series) Circular No. 40 dated 2nd March 2010

[ECB] No objection for Corporate Guarantee after Board Resolution

External Commercial Borrowings Policy – Liberalization Issue of Guarantee for operating lease

As all of you aware that in term of AP DIR Circular No.24 dated March 01, 2002 AD Category – I banks have been permitted to allow payment of lease rentals, opening of letters of credit towards security deposit, etc. in respect of import of aircraft / aircraft engine / helicopter on operating lease basis subject to the terms and conditions mentioned therein.

Further, in terms of AP DIR Circular No.01 dated July 11, 2008, as a measure of rationalization of the existing procedures, AD Category - I banks have been allowed to convey ‘no objection’ under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower, subject to compliance of prescribed conditions.

As part of further rationalization, vide AP (DIR Series) Circular No.62 dated April 20, 2009, it has been decided to allow AD Category – I banks to convey ‘no objection’ from the Foreign Exchange Management Act (FEMA), 1999 angle for issue of corporate guarantee in favour of the overseas lessee, for operating lease in respect of import of aircraft / aircraft engine / helicopter.

The ‘no objection’ to the Indian importer for issue of corporate guarantee under FEMA, 1999 may be conveyed after obtaining –

• Board Resolution for issue of corporate guarantee from the company issuing such guarantees, specifying names of the officials authorised to execute such guarantees on behalf of the company.
• Ensuring that the period of such corporate guarantee is co-terminus with the lease period.

Click here - AP (DIR Series) Circular No.62 dated April 20, 2009

FCEB made easy

FCEB made easy

What is FCEB?

Foreign Currency Exchangeable Bond is

• a Bond expressed in freely convertible Foreign Currency
• Interest and Principal of which is payable in foreign Currency
• Issued by an Indian company
• To overseas Investor who subscribes in foreign Currency
• Which on a later date can be converted into Equity shares of Offered Company

What are all the Eligibility conditions?

• Prior approval of RBI to be obtained

• Eligibility Conditions for the Offered Company
  • Offered company is a Listed company
  • Offered company is engaged in a sector eligible to receive FDI
  • Offered Company is eligible to issue FCCB or ECB
• Eligibility Conditions for the Issuer Company
  • The issuer shall form part of the Promoter Group of the offered Company
  • Issuer holding Equity Shares offered at the time of Issuance of FCEB
  • Issuer Company is not restrained by SEBI to access securities market
• Eligibility Conditions for the Subscriber
  • Entity not prohibited by SEBI from dealing in Securities
  • Subscriber comply with FDI Policy
  • Subscriber adhere to sector caps at the time of issuance of FCEB
  • Prior approval of FIPB obtained , wherever required

How the proceeds can be utilized?

• Can be invested in Promoter Group Companies
• Issuer company can invest in overseas by way of direct investment in Joint ventures or Wholly owned subsidiaries subject to FEMA Guidelines
• Promoter Group Company can utilize it according to the End Use Requirements applicable for ECBs
• Promoter Group Company shall not utilize the proceeds for investing in capital market or Real estate in India.
• Proceeds can be retained or deployed overseas in accordance with ECB policy

Conditions for Issuance?

v Rate of interest

• Rate of interest payable on FCEB and issue expenses incurred in foreign currency shall be within the ceiling prescribed by RBI for ECBs.

v Price

• The exchange price of the offered listed equity shares at the time of issuance of FCEB shall not be less than the higher of the -:

The average of the weekly high and low of the closing prices of the

related shares quoted on the stock exchange during the

(a) six months preceding the relevant date;

OR

(b) two weeks preceding the relevant date.

Relevant date-Date in which Board of Directors' passed the resolution authorizing the issuance of FCEB.

preceding the relevant date.

v Maturity

• Minimum maturity shall be 5 years for redemption

• Before that time holder can convert into shares of Offered company

• While exercising the option holder has to take delivery of shares and cash settlement is not allowed.

v Approvals Required

• Board Approval

• Shareholders approval, if applicable

• Offered company's Board approval

• Issuer company shall disclose the shareholding of the offered company to comply with respective provisions in SEBI Act, Rules, Regulations & Guidelines

v Other Conditions

• Issuer company shall not trade or mortgage or offer as collateral or trade offered securities till redemption or Exchange

• Issuer company keep the offered shares free from all encumbrances

Taxation Aspects?

• Interest till exercise subject to TDS

• Tax on dividend subject to Sec 115 AC of Income Tax Act

• Exchange of Bonds into Equity shares will not give raise to Capital Gains for computation of taxable income

• Transfer between Person Resident outside India to another Person Resident outside India will not give raise to Capital Gains tax in India.

Notified by Ministry of Finance, Dept. of Economic Affairs on Feb. 15, 2008 vide http://finmin.nic.in/the_ministry/dept_eco_affairs/capital_market_div/ExchangeableBonds.pdf