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ECBECB

&&

FCCBFCCB

PRESENTATIONON:


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FCCBFCCB PresentedBy :

Ashish makwana 23 Sandeep singh 51

Rahul gupta 15

Anilkumar pal 33

Vinodkumar chaubey 03

Abhimanyu singh 49


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External

Commercial

Borrowing


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ECB

Tata Steel Ltd. raised $500 million through ECBto support its acquisition of Corus in 2007.

Anil Dhirubhai Ambani Group's Reliance

Communication raises $150 million via ECB Shyam Telelink raises$310 million via ECB

Aircel eyes $500-mn ECB refinance

DLF in talks to refinance $300-million ECB at7%


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Data on ECB for the month of June 2010I Automatic Route

Borrrower EquivalentAmount inUSD

Purpose MaturityPeriod (Appx)

1 ECB Experian Credit Info. Com.India P.L.

1,267,245 Expansion 3 Years 10Months

2 ECB Vodafone Essar South Ltd. 50500000 Expansion 10 Years 11Months

3 ECB Jindal Steel & Power Ltd 50000000 Modernisation 5 Years

4 ECB Adani Power Ltd. 150000000 Power 6 Years 7Months

II Approval Route

1 ECB Colruyt IT Consultancy IndiaPvt Ltd

7254468 Modernisation 9 Years 2Months

2 ECB Suryajyoti Spinning Mills Ltd. 5650000 FCCB_Buy-Back

5 Years 10Months


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ECB

A source of funds for financingexpansion of existing capacity and forfresh investment out of territory

External Commercial Borrowings (ECB)refer to commercial loans availed fromnon-resident lenders


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ECB includes:

commercial bank loans

buyers credit

suppliers credit securitized instruments such as

floating rate notes

fixed rate bonds credit from official export credit

agencies,


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ECB includes:

Commercial borrowings from the privatesector

Window of multilateral financial institutionssuch as IFC, ADB, AFIC, CDC etc.

Investment by Foreign InstitutionalInvestors (FIIs) in dedicated debt funds


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Why ECB

Scarcity of fund in domestic market

Cheaper than domestic debts


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Regulation

Clause (d) of sub-section 3 of section6 of the Foreign ExchangeManagement Act, 1999 (FEMA)

With section 6 of Notification No.FEMA 3 / 2000-RB dated May 3, 2000(amended)


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Policy

Permitted by the Government as a source offinance for Corporate to expand their existingcapacity & for fresh investment

An annual cap or ceiling on access to ECB,consistent with prudent debt management

Greater priority for projects in theinfrastructure, Power, oil, telecom, railways,Roads & Bridges, Ports, Industrial parks, urban

Infrastructure & export sector.


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Eligible BorrowersAutomatic Route

Indian Companies exceptfinancial intermediaries

(such as Banks, Financial

Institutions (FIs), Housing

Finance companies and NBFCs). Units in Special Economic

Zones (SEZ) are allowed

to borrow funds through ECBs

for their own requirements.

Individuals, Trusts and Non-Profit making organizations are

not eligible to raise ECBs.

Approval Route

Financial Institutions dealing exclusivelywith infrastructure or export finance

Banks and Financial Institutions whichparticipated in the textile or steel sector

restructuring package

ECBs with minimum average maturity of 5

years by NBFCs to finance import ofinfrastructure equipment for leasing to

infrastructure projects.

FCCBs by housing finance companiessatisfying the prescribed criteria

SPVs,or any other entity notified by RBI, setup to finance infrastructure companies /

projects.

Multi-State Co-operative Societies engagedin manufacturing activities.

Corporate engaged in industrial &infrastructure sector


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Recognized Lenders

Automatic Route

Internationally recognizedsources (international banks,capital markets, multilateralfinancial Institutions, exportcredit agencies, foreigncollaborators)

foreign equity holders (otherthan erstwhile OCBs) if:

ECB up to 5 MUSD minimumequity 25%

ECB above 5 MUSD Minimum equity of 25% anddebt-equity ratio not exceeding4:1

Approval Route

Internationally recognizedsources (international banks,capital markets, multilateralfinancial Institutions, exportcredit agencies, equipmentsuppliers, foreign collaborators)

foreign equity holders (other thanerstwhile OCBs) if:

such 'foreign equity holder'

directly holds minimum 25 % ofthe paid up equity capital of theborrowing company.

In such cases the debt-equityratio may exceed 4:1, if the RBIpermits.


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Permitted End Uses Of ECBProceeds

Automatic Route

Import of capital goods bynew or existing

production units in realsector- industrial sector,including SMEs.

Investment ininfrastructure sector.

Not use for repayment ofloan, investment in capitalmarket etc.

Approval Route

In addition, the ECB proceedscan also be utilized for thefollowing purposes with the priorapproval of RBI

Implementation of new projectsand modernization / expansion ofexisting production units by thecompanies engaged in theindustrial sector including SME.

Import of capital goods by service

sector companies First stage acquisition of shares of

PSUs in the disinvestment processby Government and also in themandatory second stage offer tothe public.

Refinancing of an existing ECB


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Automatic

Route


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Amount & Maturity

Maximum ECB which can be raised is $ 500m or equivalent during a financial year.

1. ECB up to $ 20 m or equivalent in afinancial year with minimum averagematurity of three years .

2. ECB above $ 20 m and up to USD 500million or equivalent with a minimumaverage maturity of five years.


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Prepayment

Prepayment of ECB up to $ 500 m isallowed without prior approval of RBI

Minimum average maturity period isapplicable to the loan.


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Refinancing

The fresh ECB is raised at a lowercost than the existing

Maturity of the original ECB ismaintained.


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Parking of ECB Deposits or Certificate of Deposit or other

products offered by banks Deposits with overseas branch of an

authorized dealer in India

Treasury bills and other monetary

instruments of one year maturityRating of above institution AA (-) by

S&P/Fitch IBCA or Aa3 by Moodys

The funds should be invested in such a waythat the investments can be liquidated as andwhen funds are required by the borrower in

India.


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Approval

Route


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Prepayment

Prepayment of ECB up to $ 500 m isallowed without prior approval of RBI

Pre-payment of ECB for amountsexceeding $ 500 m would be consideredby the Reserve Bank under the ApprovalRoute.

(Minimum average maturity period isapplicable to the loan.)


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Expense Ceiling

AverageMaturity Period

All-in-cost Ceilingover 6 month

LIBOR*

Three years and upto five

years

200 basis points

More than fiveyears

350 basis points


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Compliances with ECBGuidelines

Contravention of the ECB guidelineswill be viewed seriously

Penal action will be taken under FEMA

1999 (cf. A. P. (DIR Series) Circular No.31 dated February 1, 2005)

The designated AD bank is required to

ensure that raising / utilization of ECBis in compliance with ECB guidelines atthe time of certification.


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Conversion of ECBinto Equity

The activity of the company is covered under theAutomatic Route for Foreign Direct Investment orGovernment approval for foreign equityparticipation has been obtained by the company,

The foreign equity holding after such conversionof debt into equity is within the sectoral cap, ifany,

Pricing of shares is as per SEBI and erstwhile CCIguidelines/regulations in the case of listed/unlisted

companies as the case may be.


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Why ECB is attractive?

Investor

ECB is for specific period, which can be as short as three years Fixed Return, usually the rates of interest are fixed The interest and the borrowed amount are repatriable

No owners risk as in case of Equity Investment

Borrower

No dilution in ownership

Considerably large funds can be raised as per requirements ofborrower Usually only a fixed rate of interest is to be paid Easy Availability of funds because ECB is more appealing to

Investors


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Foreign

Currency

ConvertibleBond


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FCCB

Foreign Currency Convertible Bonds(FCCB) are debt instruments issued in

a currency different than the issuersdomestic currency with an option toconvert them in common shares of

the issuer company.


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Features of FCCB

A debt instrument which can be converted into acompanys equity shares if the investor chooses todo so, at a pre-determined strike rate.

FCCB issues have a Call and Put option to suit

the structure of the bond, both the options aresubject to RBI guidelines.

The interest on FCCBs is generally 30% -40% lessthan on normal debt paper or foreign currencyloans or ECBs. This translates to cost saving of

approx 2-3 percent p.a.


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S G id li &


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Statutory Guideline &RBI Regulation

FCCB can be raised by two ways :

i. Automatic Route

ii. Approval Route


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Automatic Route

The automatic route is

available to real sector i.e.Industrial sector, specially

infrastructure sector-in India


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Approval Route

Financial Institutions dealing exclusively with infrastructure orexport finance such as IDFC, IL&FS, Power Finance Corporation,Power Trading Corporation, IRCON and EXIM Bank

Banks and financial institutions which had participated in the textileor steel sector restructuring package as approved by theGovernment are also permitted to the extent of their investment in

the package and assessment by RBI based on prudential norms. AnyECB availed for this purpose so far are deducted from theirentitlement.


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Regulations

Minimum Average Maturity shall be 3years for borrowing up to $ 20 m and 5years in case it exceeds $ 20 m

The maximum amount of ECB to be

raised in a financial year can be $ 500 m


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Utilization

(a) Investment purposes like Import of Capitalgoods, New projects, modernization/expansionprograms in Industrial and infrastructure sector

(b) Overseas direct investment in JV or whollyowned subsidiaries abroad

(c) RBI guidelines provide that funds receivedthrough FCCB should be parked abroad till theactual requirement arises in India.

I f FCCB B


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Issuance of FCCB ByIndian Companies

FCCBs can be issued by Indian companies in theoverseas market in accordance with Scheme forIssue of FCCB & Ordinary Shares (ThroughDepository Receipt Mechanism) Scheme, 1993.

The FCCB issue needs to conform to ExternalCommercial Borrowing guidelines, issued by RBIvide Notification No. FEMA 3/2000-RB dated May3, 2000 as amended from time to time.


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Suzlon Energy Limited

May 16, 2007 launched and priced aForeign Currency Convertible Bonds(FCCBs) issuance for an amount of USD300 million.

The FCCBs, which have a maturity of 5years and 1 day, are convertible at aconversion price of Rs 1,800 per share.

The FCCBs is listed on the Singapore

Exchange Securities Trading Ltd.


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CONCLUSION

ECBs have emerged as a forerunner in the creditmarket and have steadily gained huge prominence inthe Indian market.

The Reserve Bank of India (RBI) liberalized ECBguidelines by permitting hotels, hospitals and softwarecompanies to avail ECB up to certain prescribed limits,although the retail sector has been left out.

However, the Indian government should treadcautiously and keep a check on capricious borrowingsfrom foreign lenders while at the same time providingflexibility and keeping the health of the Indianeconomy in mind.

ECBs have become an integral part of the Indianborrowing source and seem likely to stay so for a longtime to come.


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