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    DAY A L L e g a l

    a s s o c i a t e s

    ECB Policy & ProcedureECB Policy & ProcedureDate: 31Date: 31stst May, 2010May, 2010

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    DAY A L L e g a l

    a s s o c i a t e s

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    DAY A L L e g a l

    a s s o c i a t e s

    ` External Commercial Borrowings (ECBs) include bank loans,

    suppliers' and buyers' credits, fixed and floating rate bonds (withoutconvertibility) and borrowings from private sector windows of

    multilateral Financial Institutions such as International Finance

    Corporation. Euro-issues include Euro-convertible bonds and GDRs

    ` In India, External Commercial Borrowings are being permitted by

    the Government for providing an additional source of funds to

    Indian corporate and PSUs for financing expansion of existing

    capacity and as well as for fresh investment, to augment theresources available domestically. ECBs can be used for any purpose

    (rupee-related expenditure as well as imports) except for

    investment in stock market and speculation in real estate

    ` Commercial bank loans, buyers credit, suppliers credit, securitized

    instruments such as floating rate notes, fixed rate bonds etc., creditfrom official export credit agencies, commercial borrowings from

    the private sector window of multilateral financial institutions such

    as IFC, ADB, AFIC, CDC etc. and Investment by Foreign Institutional

    Investors (FIIs) in dedicated debt funds

    What is ECB

    Includes the

    Following

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    ` The department of Economic Affairs, Ministry of Finance,

    Government of India with support of Reserve Bank of India,monitors and regulates Indian firms access to global capital markets.

    From time to time, they announce guidelines on policies and

    procedures for ECB and Euro-issues.

    ` The important aspect of ECB policy is to provide flexibility in

    borrowings by Indian corporate, at the same time maintainingprudent limits for total external borrowings. The guiding principles

    for ECB Policy are to keep maturities long, costs low, and encourage

    infrastructure and export sector financing which are crucial for

    overall growth of the economy.

    ` The ECB policy focuses on three aspects:

    Eligibility criteria for accessing external markets. The total volume of borrowings to be raised and their maturity

    structure.

    End use of the funds raised.

    Regulator

    ECBs Guiding

    Principles

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    a s s o c i a t e s

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    DAY A L L e g a l

    a s s o c i a t e s

    AutomaticAutomaticRouteRoute

    ApprovalApprovalRouteRoute

    ELIGIBLE BORROWERSELIGIBLE BORROWERS

    AMOUNT AND MATURITYAMOUNT AND MATURITY

    ALLALL--ININ--COST CEILINGSCOST CEILINGS

    END USEEND USE

    ENDEND--USES NOT PERMITTEDUSES NOT PERMITTED

    GUARANTEESGUARANTEES

    SECURITYSECURITY

    PARKING OF ECB PROCEEDSPARKING OF ECB PROCEEDS

    PREPAYMENTPREPAYMENT

    REFINANCING OF AN EXISTING ECBREFINANCING OF AN EXISTING ECB

    DEBT SERVICINGDEBT SERVICING

    PROCEDUREPROCEDURE

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    DAY A L L e g a l

    a s s o c i a t e s

    Corporate including those in hotel,

    hospital, and software sectors except

    financial intermediaries, Housing Finance

    Companies (HFCs) and Non-Banking

    Financial Companies (NBFCs) are eligibleto raise ECB.

    Individuals,Trusts and Non-Profit making

    organizations are not eligible to raise ECB.

    Financial institutions dealing exclusively

    with infrastructure or export finance, on a

    case by case basis

    Banks and financial institutions which had

    participated in the textile or steel sectorrestructuring package

    ECB with minimum average maturity of 5

    years by NBFCs, which are exclusively

    involved in financing of the infrastructure

    sector, can avail of ECBs

    Foreign Currency Convertible Bonds

    (FCCBs) by housing finance companiessatisfying the minimum criteria

    AutomaticAutomatic

    RouteRoute

    ApprovalApproval

    RouteRoute

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    DAY A L L e g a l

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    Units in Special Economic Zones (SEZ) are

    allowed to raise ECB for their own

    requirement.

    Non-Government Organizations (NGOs)

    engaged in micro finance activities areeligible to avail ECB.

    Special Purpose Vehicles, or any other

    entity notified by the Reserve Bank, set up

    to finance infrastructure companies /

    projects exclusively

    Multi-State Co-operative Societies engagedin manufacturing activity satisfying the

    SEZ developers can avail of ECBs for

    providing infrastructure facilities within

    SEZ, as defined in the extant ECB policy

    Corporate which have violated the extant

    ECB policy and are under investigation by

    Reserve Bank and / or Directorate ofEnforcement, are allowed to avail ECB only

    under the Approval route

    AutomaticAutomatic

    RouteRoute

    ApprovalApproval

    RouteRoute

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    DAY A L L e g a l

    a s s o c i a t e s

    International banks & international capital

    markets,

    Multilateral financial institutions (such as

    IFC, ADB, CDC, etc.,

    Export credit agencies Suppliers of equipment

    Foreign collaborators, and

    Foreign equity holders

    International banks international capital

    markets multilateral financial institutions

    export credit agencies, suppliers' of

    equipment foreign collaborators, and

    foreign equity holders Foreign equity holder in certain cases

    Corporate can avail of ECB of an additional

    amount of USD 250 million with average

    maturity of more than 10 years under the

    approval route, over and above the

    existing limit of USD 500 million under the

    automatic route, during a financial year.

    AutomaticAutomatic

    RouteRoute

    ApprovalApproval

    RouteRoute

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    DAY A L L e g a l

    a s s o c i a t e s

    All-in-cost includes rate of interest, other

    fees and expenses in foreign currency

    except commitment fee, pre-payment fee,

    and fees payable in Indian

    Rupees. However, the payment ofwithholding tax in Indian Rupees is

    excluded for calculating the all-in-cost

    The all-in-cost ceilings for ECB are

    reviewed from time to time

    All-in-cost includes rate of interest, other

    fees and expenses in foreign currency

    except commitment fee, pre-payment fee,

    and fees payable in Indian Rupees.

    Moreover, the payment of withholding taxin Indian Rupees is excluded for calculating

    the all-in-cost.

    The all-in-cost ceilings for ECB are indicated

    from time to time. The all in- cost ceilings

    have been dispensed with until December

    31,2009.

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    DAY A L L e g a l

    a s s o c i a t e s

    Utilization of ECB proceeds is permitted

    for first stage acquisition of shares in the

    disinvestment process and also in the

    mandatory second stage offer to the

    public under the Governmentsdisinvestment programmed of PSU

    shares.

    Payment for obtaining license/permit for

    3G Spectrum

    For lending to self-help groups or for

    micro-credit or for bonafide micro finance

    activity including capacity building byNGOs engaged in micro finance activities.

    Premature buyback of FCCBs

    The first stage acquisition of shares in the

    disinvestment process and also in the

    mandatory second stage offer to the public

    under the Governments disinvestment

    programmed of PSU shares ECB can be raised by corporate engaged in

    the development of integrated township as

    defined by Ministry of Commerce and

    Industry, DIPP, SIA

    AutomaticAutomatic

    RouteRoute

    ApprovalApproval

    RouteRoute

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    DAY A L L e g a l

    a s s o c i a t e s

    The choice of security to be provided to

    the lender/supplier is left to the borrower.

    However, creation of charge over

    immoveable assets and financial

    securities, in favor of the overseas lenderis subject to Regulation of FEMA

    AD Category - I banks have been

    delegated powers to convey no

    objection under the FEMA 1999 for

    creation of charge on immovable assets,

    financial securities and issue of corporate

    or personal guarantees in favor ofoverseas lender, to secure the ECB to be

    raised by the borrower

    The choice of security to be provided to

    the lender / supplier is left to the

    borrower. However, creation of charge

    over immovable assets and financial

    securities, such as shares, in favor of theoverseas lender is subject to Regulation as

    amended from time to time, respectively.

    Powers have been delegated to Authorized

    Dealer Category I banks to issue necessary

    'no objection' under FEMA

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    DAY A L L e g a l

    a s s o c i a t e s

    Borrowers are permitted to either keep

    ECB proceeds abroad or to remit these

    funds to India, pending utilization for

    permissible end-uses.

    ECB proceeds parked overseas can beinvested in liquid assets The funds should

    be invested in such a way that the

    investments can be liquidated as and

    when funds are required by the borrower

    ECB funds may also be remitted to India

    for credit to the borrowers Rupee

    accounts with AD Category - I banks inIndia, pending utilization for permissible

    end-uses

    Borrowers are permitted to either keep

    ECB proceeds abroad or to remit these

    funds to India, pending utilization for

    permissible end-uses.

    ECB proceeds parked overseas can beinvested in liquid assets The funds should

    be invested in such a way that the

    investments can be liquidated as and when

    funds are required by the borrower

    ECB funds may also be remitted to India for

    credit to the borrowers Rupee accounts

    with AD Category - I banks in India,pending utilization for permissible end-

    uses

    AutomaticAutomatic

    RouteRoute

    ApprovalApproval

    RouteRoute

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    DAY A L L e g a l

    a s s o c i a t e s

    Prepayment of ECB up to USD 500 million

    may be allowed by AD banks without

    prior approval of the Reserve Bank

    subject to compliance with the stipulated

    minimum average maturity period asapplicable to the loan

    Borrowers are permitted to either keep

    ECB proceeds abroad or to remit these

    funds to India, pending utilization for

    permissible end-uses.

    ECB proceeds parked overseas can beinvested in liquid assets The funds should

    be invested in such a way that the

    investments can be liquidated as and when

    funds are required by the borrower

    ECB funds may also be remitted to India for

    credit to the borrowers Rupee accounts

    with AD Category - I banks in India,pending utilization for permissible end-

    uses

    AutomaticAutomatic

    RouteRoute

    ApprovalApproval

    RouteRoute

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    DAY A L L e g a l

    a s s o c i a t e s

    The existing ECB may 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

    Existing ECB may be refinanced by raising a

    fresh ECB subject to the condition that the

    fresh ECB is raised at a lower all-in-cost and

    the outstanding maturity of the original

    ECB is maintained

    AutomaticAutomatic

    RouteRoute

    ApprovalApproval

    RouteRoute

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    DAY A L L e g a l

    a s s o c i a t e s

    Borrowers may enter into loan agreement

    with recognized lender for raising ECB

    under Automatic Route complying with

    the ECB guidelines without prior approval

    of the Reserve Bank. The borrower mustobtain a Loan Registration Number (LRN)

    from the Reserve Bank before drawing

    down the ECB.

    For allotment of Loan Registration

    Number (LRN), borrowers are required to

    submit Form 83, in duplicate, certified by

    the Company Secretary (CS) or CharteredAccountant (CA) to the designated AD

    bank

    Applicants are required to submit an

    application in form ECB through designated

    AD bank to the Chief General Manager-in-

    charge, Foreign Exchange Department,

    Reserve Bank of India, Central Office,External Commercial Borrowings Division,

    along with necessary documents

    AutomaticAutomatic

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    DAY A L L e g a l

    a s s o c i a t e s

    The borrower can draw-down the loan

    only after obtaining the LRN from DSIM,

    Reserve Bank

    Borrowers are required to submit ECB-2

    Return certified by the designated ADbank on monthly basis so as to reach

    DSIM, Reserve Bank within seven working

    days from the close of month to which it

    relates

    Same as previous slide

    AutomaticAutomatic

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    DAY A L L e g a l

    a s s o c i a t e s

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    DAY A L L e g a l

    a s s o c i a t e s

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    DAY A L L e g a l

    a s s o c i a t e s

    India Inc raises $2.82 billion through ECB, FCCBs in AprilIndia Inc raises $2.82 billion through ECB, FCCBs in April

    After crossing the $4After crossing the $4--billion (Rs 18,540 crore) mark in March, the money raised by Indianbillion (Rs 18,540 crore) mark in March, the money raised by Indian

    companies through external commercial borrowing (ECB) and foreign currency convertiblecompanies through external commercial borrowing (ECB) and foreign currency convertible

    bonds (FCCBs) dipped to $ 2.82 billion (Rs 13,056.6 crore) in April.bonds (FCCBs) dipped to $ 2.82 billion (Rs 13,056.6 crore) in April.

    During the calendar year up to April Indian companies raised a total of $ 10.65 billionDuring the calendar year up to April Indian companies raised a total of $ 10.65 billion

    (around Rs 48,990 crore) through ECB and FCCBs as compared to $ 3.2 billion in the(around Rs 48,990 crore) through ECB and FCCBs as compared to $ 3.2 billion in the

    corresponding period last year, according to the data released by the Reserve Bank of Indiacorresponding period last year, according to the data released by the Reserve Bank of India

    In April last year, Indian companies availed of foreign loans worth $298 million (Rs1,379.74In April last year, Indian companies availed of foreign loans worth $298 million (Rs1,379.74

    crore).crore).

    Vodafone Essar, the global telecom operator, was the biggest borrower in April, raising $ 1.47Vodafone Essar, the global telecom operator, was the biggest borrower in April, raising $ 1.47

    billion (Rs 6,806.1 crore) from eight transactions for import of local capital goods.billion (Rs 6,806.1 crore) from eight transactions for import of local capital goods.

    National Aviation Company of India, the second highest borrower raised $ 376 million (RsNational Aviation Company of India, the second highest borrower raised $ 376 million (Rs

    1,740.8 crore) while Shipping Corporation of India raised $ 260 million (Rs 1,203.8).1,740.8 crore) while Shipping Corporation of India raised $ 260 million (Rs 1,203.8).

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    DAY A L L e g a l

    a s s o c i a t e s