KnowLaw on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges

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Know Law

Labz India Notification 12 of 2012

A written-cum-video initiative to know your corporate legal position as on date

 

 

Legal Queries???

 

 

How to utilize & escalate your company’s resources? Are you confident that you have utilised the company's resource to the fullest potential!!!  What is your market capitalisation of the company? Do you want your declaration of financial results to be a national affair? Have you exploited all sources of funding for your business? Whether your company is enjoying a bigger brand value across the globe? Are you exploring the possibilities of various funding options internationally? How to raise money from abroad? Do you want to list your company in foreign stock exchanges like NASDAQ, London Stock Exchange, Australian Stock Exchange? Have you heard about depository receipts and how does it works? What are the instruments available ro raise money? Can foreigners invests in an Indian company through secondary market with less compliance requirement? Can an Indian company lists abroad without having any overseas branches of its office?

 

Solution…

International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges

Raising money from abroad is a good option provided you have a feasible and viable project in hand, since there more investors abroad when compared to India. This option can be utilized by a company interested in capturing resources of international market, provided it complies with the criterion of past track record & performances as prescribed.

International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges requires approval under Company laws, Securities laws, FEMA regulations, approvals of FIPB and approvals of stock exchange from abroad and India. This process involves preparation of offer documents, appointment of market intermediaries like merchant banker, satisfying criterion with depositories and custodian banks in India and abroad, collecting investments, issuing shares and listing in stock exchanges abroad.  Read More...

 

Requirement under Indian laws on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges:

Indian laws treat the depository receipt as foreign direct investment.  The law permits denomination of securities in freely convertible foreign currency and can be floated abroad in countries like United States, European Union, Australia with less procedural requirement the respective countries regulators like Securities Exchange Commission.  The FEMA regulations read with Depository receipt mechanism provides for issue of securities abroad and conversion of the bonds/instruments in foreign currency into underlying equity shares with voting rights in India after a cooling period through various intermediaries like Overseas Custodian Bank, Domestic depository in India, etc… In certain cases, the Ministry of Finance and Department of Economic Affairs may be required in addition to the one-time and periodical reporting requirement under Reserve Bank of India (RBI) regulations.

 

Myth buster on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges:

Huge formalities involved as to lock-in period of securities, the limits on number of issues per year, the end-use restrictions & lot of regulatory approvals required!!!  No, the issue process is a plain vanilla procedure with simple conditions on issue expenses and two-stage reporting requirements like a foreign direct investment into India.  The value of money that can be raised as a tap issue or as tranches has no limit as per Indian laws.  Further, the amount so raised may be used for whatsoever purposes unless it is an instrument like Foreign Currency Convertible Bonds (FCCB’s) where there is a restriction as applicable to External Commercial Borrowings (ECB).   Even further, the procedural clearance abroad for issues in alternate investment market of their country is relatively simple.

 

 

Caution point on International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges!!!

The compliance of requirements of Indian Company law as to issue of shares shall be duly complied with and necessary e-forms are filed with Registrar of Companies on time. The pricing shall be done based on the date of meeting as to the closing average high & low prices of shares in Indian Stock Exchanges.  Agreements with intermediaries shall be entered into.  Care should be taken while drafting the Offering Circular, the prospectus like offer document which should provide for all information that is required for an investor to take decision.  The prior approval of Reserve Bank of India may be required based on the sectoral cap under Foreign Direct Investment Regulations.  Also ensure the in-principle approval for listing is obtained from the stock exchanges for issue of securities in India.  Even the benefit of double taxation avoidance agreement can be enjoyed for depository receipts.  Ensure the RBI reporting shall be done promptly on 30 days of closure of issue and a quarterly reporting within 15 days.   

 

WATCH LAWLABZ VIDEO on  International Issue of securities through ADR/GDR/FCCB and listing in foreign stock exchanges in India!!! (Click Here):

 

At Lawlabz, we offer 360^O Personalized VIRTUAL Corporate Solutions by offering COMPLETE online legal support for your organization since its set-up as your entrepreneurial venture, during its management as a corporate entity or a manufacturing industry and closure of unwanted company’s which are not having any significant business of its own.

Legally Yours,

Happy Consulting with www.lawlabz.com

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KnowLaw on FEMA Compliances, Event Based, Periodical returns to be filed based on the nature of transaction in India

Know Law

Labz Notification 10 of 2011

A written-cum-video initiative to know your corporate legal position as on date

Legal Queries???

What are restrictions in foreign inflow? What are the FDI compliances with RBI? What are the ECB compliances with RBI? What are the FCCB/GDR/ADR compliances with RBI? Is there any annual return with RBI like that under Company laws? What are the consequences of non-filing of returns with RBI? When you are falling under Automatic route of FEMA, is there any reporting requirement with RBI? What happens if the inflow is not under automatic route? Is SEZ mandated by RBI for such reporting? What is the reporting procedure? What are the legal requirements in India when foreign exchange is involved in a company’s capital account transaction?

Solution…

FEMA Compliances, Event Based, Periodical returns to be filed based on the nature of transaction

The compliances under Foreign Exchange Management Act (FEMA) arise, when there is an inflow or outflow of foreign exchange. When dealing with bank accounts situated outside India or in India, you might not realize the indirect effect on foreign exchange which mandate FEMA compliances. In India, most of the current account transaction mandates reporting arrangements, whereas certain capital account transaction require approvals from the Central Bank namely Reserve Bank of India.

FEMA being an ever changing law in India, the legalization of a transaction and its dealings is a voluminous task. The approvals, intimations & reporting have to be done keeping in mind the legal updated applied with practical skills. At Lawlabz we can facilitate the same for your company’s transactions. Read More...

Requirement under Indian laws on FEMA Compliances, Event Based, Periodical returns to be filed based on the nature of transaction in India:

Whenever there is an issue, allotment, transfer or conversion of shares, an intimation or approval may be required under FEMA as an event based compliance requirement. This can happen in situations where there is an increase in the shareholding of the company or on induction of new shareholders or an investment is made into the company abroad or when there is transfer of shares in which one party is an Indian or when loans (External Commercial Borrowings) are converted into equity capital. Further, whenever arises an event under FEMA, it comes with a obligation to submit periodical returns as well on a monthly basis for loans related dealing, quarterly basis for FCCB/ADR/GDR related overseas issues and on a annual basis for equity related dealings. Further, there are ceiling limits of 7 days/15 days/30 days/60 days/180 days for various compliances mentioned above. Even further, there is a requirement of certification of procedural compliance of the transaction by a Company Secretary and a certification on valuation of shares through Discounted Cash Flow method by a Chartered Accountant. Any delayed filing beyond the prescribed period also amounts to violation of law which can invite actions from RBI. Hence, in such cases, there is a option of voluntary compounding of offences by disclosing the offence to RBI.

Myth buster on FEMA Compliances, Event Based, Periodical returns to be filed based on the nature of transaction in India:

FEMA compliances are not a mere one-time requirement of reporting whenever there is a requirement of funding or investment or raising money in India or abroad but it goes beyond as a regular procedural requirement once, one of such transaction with a foreign country or foreigner is made. The entire business transaction shall be consulted with an expert as to its impact on automatic route or approval route and how it shall be proceeded with. It may happen, the transaction is under automatic route but as it is taken up by a large enterprise, it may fall under approval route that shall be duly considered. Whenever a foreign exchange transaction happens, it should be considered on a wholesome basis as to its requirements on foreign exchange laws, the accounting treatment of the transactions and the legality of it under the requirement of various corporate laws, industrial laws and sector-specific laws.

Caution point on FEMA Compliances, Event Based, Periodical returns to be filed based on the nature of transaction in India!!!

As the requirements of FEMA are constantly changing as updated by RBI, one shall take caution to ensure whether the reporting requirement on a particular date is in the latest prescribed legal requirement in India. The transacting Indian company shall be in regular touch with their Authorised Dealer (the bank in India) who is responsible for conversion of foreign exchange till the time the bank gets a final confirmation from RBI as to the satisfaction of the legal compliance requirement. The Joint ventures or foreign collaborations shall give due consideration of this legal requirement as this involves a hefty penalty of 3 times of the amount involved or to take the route of compounding to safeguard from violations.

WATCH LAWLABZ VIDEO on FEMA Compliances, Event Based, Periodical returns to be filed based on the nature of transaction in India!!! (Click Here):

At Lawlabz, we offer 360^O Personalized VIRTUAL Corporate Solutions by offering COMPLETE online legal support for your organization since its set-up as your entrepreneurial venture, during its management as a corporate entity or a manufacturing industry and closure of unwanted company’s which are not having any significant business of its own.

Legally Yours,

Happy Consulting with www.lawlabz.com

For Private Circulation Only. The copyright of this notification is retained by Lawlabz. Notwithstanding anything contained herein, this notification does not amount to opinion or consultation of any nature. One Pager

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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

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

ECB by IFC now under Automatic route UPTO 50% of owned funds, RBI

As a measure of liberalisation of the existing procedures, it has been decided to permit the IFCs to avail of ECBs, including the outstanding ECBs,

• up to 50% of owned funds under the automatic route, subject to their compliance with the prudential guidelines already in places.
• above 50% of their owned funds would require the approval of the Reserve Bank and will, therefore, be considered under the approval route.

Source: A. P. (DIR Series) Circular No. 51 dated 11th May 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

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

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

Conversion into New Pricing Norms for FCCB on or before 15th August 2010 (ie) average 2 week high & low prices only like QIP under ICDR

A Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme was notified in 1993 to allow the Indian Corporate sector to access global capital markets through issue of Foreign Currency Convertible Bonds (FCCB)/Equity Shares under the Global Depository Receipt Mechanism (GDR) and American Depository Receipt Mechanism (ADR). The Scheme has been amended several times since then.

What is FCEB?

Amendment: On or before 15th August 2010 (6 month period from 15th February 2010), the corporates have the option to revise from OLD CONVERSION PRICE norms to NEW CONVERSION PRICE norm (as below) for FCCB’s.  The said revision of conversion price is subject to the following conditions:

• Prior approval from RBI (PRBI) is mandatory.
• The issuing Company shall ensure that the revision of price and consequent issue of shares may not breach Foreign Direct Investment (FDI) limit (Sectoral caps) under Automatic or Approval route.
• The issuing Company shall take approval from its Board as well as from its shareholders (Board Resolution + Ordinary Resolution).
• The issuing Company shall enter into a fresh agreement with the FCCB holders in terms of re-negotiation of the conversion price.

Source: Ministry of finance Press Note F.No.9/3/2009-ECB dated 15th February 2010.

[Old Conversion Price]FCCB Pricing Norm prior to 27th November 2008:

Listed Companies – The pricing should not be 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;

(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 week preceding the relevant date.

The “relevant date” means the date thirty days prior to the date on which the meeting of the general body of shareholders is held, in terms of section 81 (IA) of the Companies Act, 1956, to consider the proposed issue.”

[New Conversion Price]FCCB Pricing Norm from 27th November 2008: similar to QIP pricing under ICDR

Listed Companies – The pricing should not be less than the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the two weeks preceding the relevant date; [avg 2 weeks high & low]
The “relevant date” means date of the meeting in which the Board of the company or the Committee of Directors duly authorized by the Board of the company decides to open the proposed issue.”

Source: FINMIN

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

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

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

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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[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

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[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