EXTERNAL COMMERCIAL BORROWINGS (ECB)
Indian companies are allowed to access funds from abroad in
the following methods:
(i) External Commercial
Borrowings (ECB): ECBs refer to commercial loans in the form of
bank loans, securitized instruments (e.g. floating rate notes and fixed
rate bonds, non-convertible, optionally convertible or partially convertible
preference shares), buyers' credit, suppliers' credit
availed of from non-resident lenders with a minimum average maturity of 3
Currency Convertible Bonds (FCCBs): FCCBs mean a bond issued by an
Indian company expressed in foreign currency, and the principal and interest
in respect of which is payable in foreign currency. The bonds are required to
be issued in accordance with the scheme viz., "Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism)
Scheme, 1993', and subscribed by a non-resident in foreign
currency and convertible into ordinary shares of the issuing company in any
manner, either in whole, or in part, on the basis of any equity related
warrants attached to debt instruments. The ECB policy is applicable to FCCBs.
The issue of FCCBs is also required to adhere to the provisions ofNotification
FEMA No. 120/RB-2004 dated July 7, 2004, as amended from time to time.
Preferences Shares (i.e. non-convertible, optionally convertible or partially
convertible) for issue of which, funds have been received on or after May 1,
2007 would be considered as debt and should conform to the ECB policy.
Accordingly, all the norms applicable for ECB, viz. eligible borrowers,
recognized lenders, amount and maturity, end use stipulations, etc. shall
apply. Since these instruments would be denominated in Rupees, the rupee
interest rate will be based on the swap equivalent of LIBOR plus the spread as
permissible for ECBs of corresponding maturity.
Foreign Currency Exchangeable
Bonds (FCEBs): FCEBs means a bond expressed in foreign
currency, the principal and interest in respect of which is payable in foreign
currency, issued by an Issuing Company and subscribed to by a person who is a
resident outside India, in foreign currency and exchangeable into equity share
of another company, to be called the Offered Company, in any manner, either
wholly, or partly or on the basis of any equity related warrants attached to
debt instruments. The FCEBs must comply with the 'Issue of
Foreign Currency Exchangeable Bonds (FCEB) Scheme, 2008',
notified by the Government of India, Ministry of Finance, Department of
Economic Affairs vide Notification G.S.R.89(E) dated February 15, 2008. The
guidelines, rules, etc. governing ECBs are also applicable to FCEBs.
ECB can be accessed under two
routes, viz., (i) Automatic Route outlined in paragraph I (A) and (ii) Approval
Route outlined in paragraph I (B).
ECB for investment in real
sector-industrial sector, infrastructure sector and specified service sectors
in India as indicated under para I (A) (i) (a) are under the Automatic Route,
i.e. do not require Reserve Bank / Government of India approval. In case of
doubt as regards eligibility to access the Automatic Route, applicants may take
recourse to the Approval Route. It is clarified that eligibility for an ECB in
respect of eligible borrowers, recognised lenders, end-uses, etc. have to be
read in conjunction and not in isolation.