IDBI planning $300 m ECB for textiles recast

After the $300 million external commercial borrowing (ECB) for the steel sector, it's now the turn of the textile sector.

Industrial Development Board of India (IDBI) is planning to approach the Union finance ministry to raise $300 million through the ECB route for restructuring the textile sector.

The institution has already conducted a due-diligence of its stressed textile assets and took stock of the amount required for restructuring them as per the criteria issued by the ministry.

According to official sources, the loan will be used to restructure the textile sector so as to meet the challenges emerging in the World Trade Organisation regime post-2005.

The earlier ECB guidelines, which were tightened for end-use monitoring and usage of dollar loans, were not applicable for sectors such as steel, infrastructure and textile.

When the guidelines were relaxed and sanctioning of loans up to $ 500 million was allowed under the automatic route recently, the enhanced amount was not made applicable to these three sectors, said sources. Therefore, it requires a separate application to be made to the ministry.

Last month IDBI had got the approval to raise $300 million ECB to restructure the steel sector, while it had applied for $500 million.

The loan was for a five-year tenure and was expected to favour four major steel companies including Jindal Steel, Essar Steel and Ispat.

Even though these companies are eligible for raising foreign currency loans on their own, the new ECB guidelines, which restrict banks and financial institutions to furnish guarantees to their respective borrowing programmes, impose a major hurdle.

Prior to the IDBI fund plan for the steel sector, Ispat and Jisco were planning ECBs of $225 million each, while Essar had proposed an issue of $200 million.

In the process, Jisco had planned to convert around Rs 1,000 crore of its rupee debt into foreign loans and to reduce the cost of borrowing from 9.2 per cent to eight per cent.

Similarly, Essar Steel was looking forward to reduce cost of borrowings to 5.5 per cent from the current rate of 11.5 per cent.

Ispat, through the proposed ECB, had planned to cut the cost from 14 per cent to 5 per cent. However, these restructuring plans took time to materialise with the government tightening the ECB norms.