FM further eases ECB norms

As part of the modified norms announced on Friday, bonds and floating rate notes (FRNs) can be raised in tranches of different maturities as long as the average maturity of different tranches taken together satisfies the criteria set out in the ECB guidelines. In such cases, longer-term borrowings will precede that of the shorter term. This is expected to provide further flexibility in average maturity, ECB entitlements for infrastructure projects and interest rates for funding.

Greater flexibility may be considered for infrastructure projects on merit. Normally, all infrastructure and greenfield projects are permitted to avail themselves of external commercial borrowings to the extent of 35 per cent of the total project cost.

For telecom projects, 50 per cent of the project cost (including licence fee) will be allowed as a matter of course.

At present, interest rate limits on external commercial borrowings for project funding (especially non-recourse financing) allow interest spreads above Libor/US treasury to be higher than for normal ECB. Ordinarily, a spread up to 350 basis points is allowed. However, the modified norms stipulate that keeping in view the market conditions, some flexibility will be permitted in determining spread on merit.

The government had earlier announced modified guidelines in April 1997, taking into account the changing financial environment, sectoral funding requirements and financing flexibility for corporates. Some of these aspects include removal of the end-use restrictions for projects in the infrastructure sectors, besides power, telecom and railways, greater flexibility in financing the equity investment in infrastructure areas and enhancement of the borrowing limits for exporters.