ECBs from any 'recognised' source allowed

The government has further liberalised the guidelines for external commercial borrowings, allowing companies to raise foreign loans from any internationally-recognised source.
It has, however, decided not to entertain offers for ECBs under $5m. Allowing limitless prepayment of ECBs until March 31, ''03, the government has also withdrawn the conditions imposed in August when the RBI brought the pre-payment of ECBs under automatic route.
Foreign sources from which companies can raise funds have been identified as banks, export credit agencies, suppliers of equipment, foreign collaborators, foreign equity holders and international capital markets.
For more than one borrowing during a financial year, the minimum average maturity for ECBs up to $20m has been fixed at three years. For amounts in excess of $20m, the average maturity has been prescribed as five years.
An official release issued here today said the government has authorised the RBI to issue the required guidelines for prepayment of ECBs, which it is expected to announce shortly.
The government has also announced a comprehensive ECB policy for companies registered in special economic zones. It has withdrawn the three year maturity restriction on SEZ units.
In the Exim Policy for ''02-07, the government had announced that SEZ units would be permitted to avail all ECBs for maturity of less than 3 years. The release said that units in SEZs may now be allowed to raise ECBs without any maturity restriction but through recognised banking channels and strictly on a “stand-alone basis�.
This means that units in SEZs would have to be completely isolated from financial contacts with their subsidiaries or their parent in the mainland or within the SEZs as far as repayment of ECB interest/principal is concerned.
In effect, only those units which are either subsidiary/branch of a company registered outside India or where a company is registered independently for operating in one or more zone in the country, would qualify for stand-alone criteria.
Borrowers in the SEZs will be allowed to raise ECB under the special window as announced in the Exim Policy. They would service the loan (principal plus interest plus any other fee, charge) out of proceeds generated by the SEZ units, the release added.
There would, however, be an annual cap of $500m for such units to avail this facility. Monitoring of the overall cap would be done by the RBI.
It would also issue necessary guidelines in this regard. Debts incurred by units in SEZs would be treated as external debt of India, as per the IMF classification.
However, this debt would be separately and uniquely identified while explaining that the units in SEZs will not have access to the foreign exchange reserves of India for purposes of servicing the debt.
The restrictions on the end-use for ECB proceeds for investment in real estate sector have also been dropped. ECB can thus be raised for the development of integrated townships. The existing maturity guidelines for such ECBs would, however, still be applicable.
There is, however, no change in the current ECB policy for trusts/non-profit making organisations and they would continue to be barred from raising foreign commercial loans.
Under the present automatic route for prepayment, RBI had said that in the case of applications where the amount of prepayment of ECB is fully matched by way of inflow of foreign exchange in the form of foreign investment in the applicant money, there would be no limit on prepayment of ECBs.
This condition for limitless pre-payment has been withdrawn by the government today. Also, limitless prepayment was permitted in cases where borrower makes a prepayment out of balance held in its export earner''s foreign currency (EEFC) account. Today''s announcement has removed this condition as well.
Other conditions such as the $ 50 million limit on prepayment imposed on corporates that were permitted to make a prepayment to the extent of 10% of outstanding loan before the RBI announcement in August have also been removed.
The ECB story: * Government liberalises ECB norms
* Companies can raise ECB from any internationally recognised source
* Unrecognised sources or offers of under $5 million will not be entertained * Full prepayment of ECBs allowed, existing RBI''s conditions exempted up to March 31, 2003
* maximum limit of $50 million for auto-route in a fiscal
* for more than one ECB in a year up to $20 million average maturity to be three years and above that five years * end use of ECB for real estate purposes freed
* bar on trusts and non-profit making bodies for raising ECBs retained
*separate package for SEZs.