RBI draft ECB norms: Firms may get access to sovereign, pension funds

According to the draft guidelines on ECBs released by the RBI, there will only be a small negative list which include stock market operations, real estate activity and purchase of land. They will not be allowed to raise funds via ECBs or rupee-denominated borrowing.

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It has proposed to cap the minimum maturity of ECB up to $50 million at 3 years and 5 years for amount exceeding $50 million. The minimum average maturity for long term ECB should be 10 years. With regard to all inclusive cost, it said, interest rate for normal ECB should be 50 basis points less than the existing rate which is LIBOR plus 350 basis point, the RBI draft says.

As per the guidelines, ECB funds can also be used to repay trade credit up to 3 years, payment towards capital goods already imported, purchase of second-hand domestic capital goods, plant machinery, on-lending to infrastructure Special Purpose Vehicle and Overseas Direct Investment in JVs.

The framework for the rupee-denominated bonds will be announced separately. Real estate investment trusts and Infrastructure Investment Trust will be permitted to raise funds through these instruments. The currency risk with regard to rupee-denominated ECB will lie with the lender or investor and hence the modified framework provides for minimal control for these borrowings, it said. The latest ECB guidelines on which RBI has invited comments till October 1 are aimed at replacing the ECB policy with a more rational framework. This is in line with the evolving domestic as well as global macro and financial conditions, challenges faced in external sector management and the experience gained so far, the RBI draft guidelines said.