PSU stakes can be bought through ECBs now

Corporates can now fund acquisition of public sector undertakings on the disinvestment list through external commercial borrowings (ECB), subject to a limit of $500 million, under the automatic route.

Further, ECB proceeds can also be used for investment in the real sector "" industrial sector, including small and medium enterprises, and infrastructure sector.

The utilisation of ECB proceeds, however, is not permitted in the real estate. The term 'real estate' excludes development of integrated township.

The Reserve Bank of India (RBI) said the transparent and simplified policies and procedures pertaining to ECBs follows a review of the current macro-economic situation, challenges faced in external sector management and the experience gained so far in administering the ECB policy.

Under the automatic route, which does not require RBI/ government approval, corporates registered under the Companies Act (except financial intermediaries - banks, financial institutions, housing finance companies and NBFCs) are eligible.

ECBs up to $20 million or equivalent should have a minimum average maturity of three years; ECBs above $20 million and up to $500 million or equivalent should have a minimum average maturity of five years; and ECBs up to $20 million can have call/put option provided the minimum average maturity of 3 years is complied before exercising call/put option.

ECB proceeds should be parked overseas until actual requirement in India.

The all-in-cost for ECBs with minimum average maturity of three years and up to five years is 200 basis points over the six months Libor for the respective currency of borrowing; and those of more than five years is 350 basis points over the six months Libor.

Guarantee/standby letter of credit or letter of comfort by banks, financial institutions and NBFCs relating to ECB is not permitted.

Prepayment of ECB up to $100 million is permitted without prior approval of RBI, subject to compliance with the stipulated minimum average maturity period as applicable for the loan.

Refinancing of existing ECB by raising fresh loans at lower cost is permitted subject to the condition that the outstanding maturity of the original loan is maintained.

Under the approval route, among the categories of ECB covered are: (i) financial institutions (IDFC, IL&FS, Power Finance Corporation, PTC, Ircon, Exim Bank) dealing exclusively with infrastructure or export finance (ii) banks and financial institutions which had participated in the textile or steel sector restructuring package approved by the Government and based on assessment of prudential norms by RBI, and (iii) cases falling outside the purview of the automatic route.

The liberalisation made for ECB has also been extended to Foreign Currency Convertible Bonds (FCCB) in all respects.