[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] 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

FII’s rush with your debt request to SEBI tonight when clock ticks 23:59 PM IST

Yes, as you are aware the Government of India reviewed the External Commercial Borrowing policy and increased the cumulative debt investment limit by USD 9 billion (from USD 6 billion to USD 15 billion) for FII investments in Corporate Debt.  Click here for the amendment.

1. As per SEBI circular No. IMD/FII & C/37/2009 dated February 06, 2009 USD 8 billion shall be allocated to the FIIs/ sub-accounts in an open bidding platform.
2. The remaining limit for investment in corporate debt shall be allocated among the FIIs/sub-accounts on a ‘first come first served’ basis in terms of SEBI circular dated January 31, 2008, subject to a ceiling of Rs.249 cr. per registered entity.
3. The debt requests in this regard shall be forwarded to the dedicated email id fii_debtrequests@sebi.gov.in . The window for first come first served process shall open at 23:59 PM IST, March 17, 2009. Time period for utilization of the allocated debt limit through first come first served shall be 11 working days from the date of the allocation.

Find more details of this circular no. IMD/FII & C/38/2009 dated March 13, 2009 in http://www.sebi.gov.in/circulars/2009/fii382009.html

Now Buy Back FCCB till 31st December 2009

1. Attention of Authorized Dealer Category - I (AD Category - I) banks is invited to the A. P. (DIR Series) Circular No.39 dated December 08, 2008 on the captioned subject. In terms of Para 7 of the above circular, the entire procedure of buyback should be completed by the Indian Companies by March 31, 2009.

2. It has been decided to extend the date for completing the entire procedure for buyback of FCCBs from March 31, 2009 to December 31, 2009. Accordingly, the entire procedure of buyback should be completed by December 31, 2009.

3. All the other terms and conditions of buyback / prepayment of FCCBs as mentioned in A. P. (DIR Series) Circular No.39 dated December 08, 2008, shall remain unchanged.

For the status before this amendment, kindly click Prepayment of FCCB.

Click here for the said amendment RBI/2008-09/411 A. P. (DIR Series) Circular No. 58 dated 13th March 2009.

[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.

[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

[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] 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]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

[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.