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The Government had issued the last consolidated ECB
Guidelines in July 1999. Subsequent amendments to these
guidelines were made for streamlining/liberlising ECB
procedures in order to enable Indian corporate to have
greater access to international financial markets. The
last being the Press Release dated 03-07-2002*. Taking
into account changes in external financial markets,
requirements of corporates, and with a view to liberalising
further ECB approvals, the Government has decided to
make the following changes in the ECB guidelines:
I.
Recognised lender:
Applicants
will be free to raise ECB from any internationally recognized
source such as banks, export credit agencies, suppliers
of equipment, foreign collaborators, foreign equity
holders, international capital markets etc . Offers
from unrecognized sources will not be entertained and
this would also be applicable for ECBs below USD 5 Million.
II.
Prepayment of External Commercial Borrowings ( ECBs
)
Prepayment of ECBs has been delegated to RBI. It is
now proposed that prepayment of ECBs will be permitted
without any limit and also without any of the existing
conditions given in Para 1 (a) to (d) of A.P. DIR Series)
Circular No. 8 dated August 5,2002. This window of prepayment
would be effective up-to 31st March 2003. It would also
be subject to review keeping in view the market conditions.
The Reserve Bank of India will issue necessary Press
Note incorporating the above, revised prepayment guidelines.
III.
Deletion of end-use restrictions in respect of investments
in real estate Sector
It
has been decided to drop the restrictions of end-use
for ECB proceeds for investment in real estate sector.
Henceforth, ECB could be raised for the development
of integrated townships as defined by Ministry of Commerce
& Industry, Department of Industrial Policy &
Promotion SIA (FC Division) Press Note 3 (2002 Series
dated 04.01.02). On the issue of maturity for such ECBs,
it has been decided that the existing maturity Guidelines
would be applicable.
IV. Maximum eligibility under auto-route and corresponding
maturity
In terms of ECB guidelines, it has been decided that:
(a)
A borrower can raise up to a maximum of USD 50 Million
under auto-route during a given financial year.
(b) In case a borrower decides to raise more than one
ECB in a given financial year for the ECBs up to USD
20 Million the minimum average maturity would be three
years. For amounts in excess of USD 20 Million, the
average maturity would need to five years.
V.
Ineligibility of Trust and non-profit marking organizations
to access ECBs
The issue of eligibility of Trust and non-profit making
organizations to access ECB was considered and it has
been decided that there would no change in the current
ECB policy and Trusts/ non-profit making organizations
would continue to be ineligible to raise ECBs.
VI. Removal of restrictions on External Commercial
Borrowings (ECBs) being raised by the Units in Special
Economic Zones ( SEZs).
In
the EXIM policy for 2002-2007 announced on 31st March,2002
it has been indicated that units in SEZs will be permitted
to avail al ECBs for maturity of less than 3 years.
To operationalise this decision of the Government conveyed
though the EXIM policy the following amendments are
proposed for units in SEZs:
a)
Units in SEZs may be allowed to raise External Commercial
Borrowings without any maturity restriction but though
recognized banking channels and strictly on a "stand
alone basis".
b)
By "stand alone" it is meant that units in
the SEZs would be completely isolated form 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. Therefore, in
effect only those units, which are either subsidiary/branch
of a company registered outside India or where a company
is registered in dependently for operating in one or
more zone in the country, would qualify for stand along
criteria. Borrowers in the SEZs are to be allowed to
raise ECB under the special window as announced in the
EXIM policy. They would service the loan (principal
+ Interest + any other fee, charge etc.) out of proceeds
by the SEZ units.
c)
There would be an annual cap of US$ 500 million for
such units SEZs to avail this facility. Reserve Bank
of India (RBI) would monitor the overall cap. Necessary
Guidelines will be issues by RBI in this regard..
d)
Treatment of debt:
i)
According to IMF classification the debts incurred by
units in SEZs would be treated as external debt of India.
ii)
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.
2. The above amendments would be effective from the
date of issue of notification of such regulations/directions.
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