Airlines can raise $300 mn via ECBs

* Finance Ministry has capped external borrowings for the aviation sector at $1 billion

Written by ENS Economic Bureau | New Delhi | Published: April 20, 2012 12:57 am

In a move that will provide much needed succor to cash-strapped airline firms,the finance ministry on Thursday allowed them to raise external borrowings to meet their working capital requirements.

While the ECB limit for the civil aviation sector has been capped at $1 billion,the finance ministry has also fixed an individual limit of $300 million for airline companies. “This limit can be availed either in a lump sum or in tranches depending upon the utilisation of the limit during the one year period,” said Thomas Mathew,joint secretary,capital markets division,finance ministry,adding that the individual limit could be relaxed if the overall window is not fully utilised.

The Reserve Bank of India will issue guidelines over the next seven days to notify this facility,the official said. Until now,this facility was not available for aviation firms. Air India,which has a 42,000 crore debt,floated a tender for availing this facility earlier this week.

The move follows a Budget 2012-13 announcement to allow aviation companies to avail of ECBs for a one-year period for working capital and refinancing outstanding working capital rupee loans. However,finance ministry has turned down a civil aviation ministry proposal to enhance the ECB limit to $2 billion and extension the ECB window to two years.

The RBI would,however,consider individual proposals by companies under the approval route based on parameters such as cash flows and the capacity of individual companies to repay such loans through foreign exchange earnings. The central bank would also consider relaxation in the average maturity period for ECBs over 20 million from five to three years,the official said. The government had recently cleared a financial restructuring plan for the state owned carrier Air India to bring down its interest burden.

Debt-ridden Kingfisher Airlines has been forced to cut down on its flights and lay off staff after domestic banks refused to extend additional loans.

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