1. 0 EXTERNAL COMMERCIAL BORROWINGS 7 November 2015

2. 1 Contents 1 Basic Concepts Automatic & Approval Route Procedural Aspects Trade Credits Structured Obligations Foreign Currency Convertible Bonds 2 3 4 5 6 Offshore rupee denominated bonds 7

3. Basic Concepts

4. 3 Principal Regulations - ECB Foreign Exchange Management Act, 1999 Section 6 (3) (d) - Borrowing or Lending in Foreign Exchange in whatever name or whatever form called Power to regulate (Section 47) Notifications FEM (Borrowing or Lending in Foreign Exchange) Regulations, 2000 AP DIR Circulars AP (DIR Series) Circulars issued by RBI from time to time Master Circular Master Circular No. 12/2015-16, dated 1st July, 2015

5. 4 Definition External Commercial Borrowings – Commercial Loans, buyer / suppliers credit, securitized instruments (Bonds, non-convertible/partially/optionally Preference shares etc.) with a minimum average maturity of 3 years. Indian Company Foreign Company India Outside India Interest Loan What is Deemed ECB?

6. 5 Permitted Route ECB Automatic Approval (RBI Route) Conditions Prescribed Eligible Borrowers Recognized Lenders Amount & Maturity All-in-cost ceilings End use restrictions Other conditions

7. Automatic Route

8. 7 Automatic Route - Eligible Borrowers Corporates Services sector – Corporates engaged in Hotel, Hospital and Software sectors eligible Units in SEZ (only for own requirement) Specified categories of NBFC’s (IFC/AFC) NGO’s and Micro Finance Institutions engaged in micro-finance activities Companies in miscellaneous services sector - engaged in training activities (but not educational institutes), research and development activities and companies supporting infrastructure sector. - only from overseas direct / indirect equity holders and group companies. Holding Companies / Core Investment Companies (CICs) are permitted to raise ECB for project use in Special Purpose Vehicles (SPVs) provided the business activity of the SPV is in the infrastructure sector and the SPV is established exclusively for implementing the project. Companies doing trading business, companies providing logistics services, financial services and consultancy services are specifically excluded from this category. Not eligible - Individuals, Trusts, Non-profit organizations

9. 8 Automatic Route – Recognized Lenders International banks Multilateral financial institutions (IFC, ADB, etc.) Regional financial institutions / Government owned development financial institutions Export credit agencies Suppliers of equipment Foreign collaborators Foreign equity holders* Indirect equity holder (more than 51%) - manufacturing, infrastructure, hotels, hospitals and software sectors Automatic Route *Foreign Equity Holder – conditions –ECB up to USD 5 million – minimum 25% equity directly held by lender –ECB beyond USD 5 million- minimum 25% equity directly held and ECB liability not to exceed 4 times the direct foreign equity holding by lenders

10. 9 Automatic Route – Recognized Lenders Points to note: ECB from indirect equity holders is permitted provided the indirect equity holding in the Indian company by the lender is at least 51 per cent. ECB from a group company is permitted provided both the borrower and the foreign lender are subsidiaries of the same parent. Paid-up capital, free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet shall be considered. ‘ECB liability’, shall include all outstanding ECBs and the proposed borrowing.

11. 10 Automatic Route - Amount and Maturity Amount per borrower per yearMinimum average maturity Up to USD 20 million 3 years Above USD 20 million and up to USD 750 million*5 years * restricted to USD 200 million for services sectors viz. hotels, hospitals and software companies Corporate other than those in the hotel, hospital and software sectors, and corporate in miscellaneous services sector - can avail ECB upto USD 750 Million ECB for General corporate purposes with minimum average maturity period of 7 years.

12. 11 Automatic Route Permitted End Use Investment in import of capital goods New and expansion projects Overseas direct investment in JVs /WoS Import of services, technical know how and payment of license fee as part of import of capital goods – manufacturing & infrastructure General corporate purposes (including working capital) – Manufacturing, Infrastructure, Hotels, Hospitals & Software Government disinvestment program of PSU shares For lending to self-help group / micro-credit / bona fide micro finance activity including capacity building by NGO’s IFC (NBFC) – on-lending to infrastructure sector Interest during construction (IDC) Restricted On-lending or investment in capital markets Acquiring a company in India by a corporation Real estate Working capital or general corporate purposes – if conditions are not met Repayment of existing rupee loan

13. Approval Route

14. 13 Approval Route – Eligible Borrowers Eligible for specific purposes - Banks, Financial Institutions, NBFCs, Housing Finance Companies, Multi-State Co-operative Societies and certain Special Purpose Vehicles notified by Reserve Bank of India (RBI) For ECB more than USD 5 million - Condition of minimum direct equity holding is 25% and ECB proceeds not to exceed 7 times the direct foreign equity holding by lenders Other than corporates in the services sector viz. hotel, hospital and software and in the miscellaneous services sector can avail of ECB beyond USD 750 million or equivalent per financial year. Corporates in the services sector and in miscellaneous services can avail of ECB beyond USD 200 million or equivalent per financial year. ECB for corporates in miscellaneous services is permitted only from direct / indirect equity holders and group companies. SEZ developers for providing infrastructure facilities Cases falling out of automatic route & maturity period ECB should not be raised from overseas branches / subsidiaries of Indian banks

15. 14 Approval Route Permitted End UseRestricted Investment in import of capital goods New and expansion projects Overseas direct investment in JVs /WoS Interest during construction (IDC) Government disinvestment program of PSU shares Repayment of rupee loans by companies in the infrastructure sector. Bridge finance General corporate purposes (including working capital), from direct forign equity holder. Working capital for civil aviation sector On-lending or investment in capital markets Acquiring a company in India by a corporation Real estate Working capital or general corporate purposes – if conditions are not met

16. Procedural Aspects

17. 16 All in cost Ceiling All in Cost = Interest + other fees & expenses in foreign currency – (commitment fee +pre-payment fee + fee payable in India rupees + withholding tax) Average MaturityAll-in-cost ceiling over 6 month LIBOR* 3 years to 5 years 350 basis points More than 5 years500 basis point * For the respective currency of borrowing or applicable benchmark * ECBs with higher all-in-cost ceilings permissible with RBI approval MIBOR?

18. 17 Minimum Average Maturity Normal Maturity?

19. 18 Process and compliances Automatic Route a) Execute a Loan Agreement with the overseas lender. b) Prepare and file form 83 for obtaining Loan Registration Number (LRN) in duplicate, certified by the Company Secretary or Chartered Accountant to the Authorized Dealer. c) AD will process the application and forward the one copy to Department of statistics and information system, RBI for generating LRN. d) First draw down should be only after obtaining LRN. Approval Route Application in form ECB through designated AD bank to RBI along with appropriate documents. Once approval is received, proceed with the process stated under automatic route. On-going compliance ECB-2 Return certified by the designated AD bank needs to be submitted on monthly basis - to reach RBI within seven working days from the close of month to which it relates.

20. 19 Other Aspects Guarantee – Any issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by bank, FI and NBFC towards ECB under automatic route is not permitted Issuance of guarantee for SME & textile industry can be considered under approval route Security –AD banks are vested with the powers to allow creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised / raised by the borrower, subject to satisfying themselves on the proposed transaction. Parking of ECB Proceeds – Can be parked abroad / remitted to India for utilization against permissible use ECB parked outside can be invested in specified liquid assets, which can be liquidated as and when funds are required by the borrower Pre-Payment - Allowed by AD bank up to USD 500 million if complied with stipulated minimum average maturity period. Any prepayment above USD 500 million under approval route Refinancing of existing ECB – Permitted if availed at lower all-in-cost & maturity of original ECB is maintained.

21. 20 Conversion of ECB into Equity General permission to convert ECB (excluding Deemed ECB) Conditions: Activities to be under Automatic Route / FIPB approval obtained Sectoral Cap not breached Pricing guidelines followed (listed / unlisted company) Reporting structure Full conversion of outstanding ECB into equity – Form FC-GPR to AD & Form ECB-2 to DSIM within 7 working days from the close of the month Partial conversion of outstanding ECB into equity – Form FC-GPR for converted portion & Form ECB-2 to DSIM mentioning converted and unconverted portion Interest on ECB?

22. 21 Powers with AD Bank AD Banks have been delegated with the powers to approve the following aspects in relation to ECB’s: Changes/modifications in the drawdown/repayment schedule - with or without change in the average maturity period or all-in-cost; Changes in the currency of borrowing; Change of the AD bank; Changes in the name of the Borrower Company; Transfer of ECB; Change in the recognized lender; Change in the name of Lender; Cancellation of LRN; Change in the end-use of ECB proceeds; Reduction in amount of ECB; Change in all-in-cost of ECB.

23. Trade Credits

24. 23 Trade Credits Trade Credits (“TC”) refer to credits extended for imports directly by the overseas supplier, bank and financial institution for maturity of less than three years. TC can be obtained up to a maximum of USD 20 million per import transaction Maturity period and amount -Normal Import transactions – USD 20 million – 1 year -Import of Capital goods- USD 20 million – upto 5 years -Rollover / extension not permitted All in cost ceiling* – 6 month LIBOR plus 350 basis points Guarantee – AD banks are permitted to issue LC/LoC/guarantee/LoU etc. in favor of overseas supplier / bank / FI upto USD 20 M per transaction – 1 year – import of non-capital goods permissible under FTP – 3 years – import of capital goods * For the respective currency of borrowing or applicable benchmark

25. Structured Obligations

26. 25 Structured Obligations Indian Company Loan Indian Bank FCo1 India Outside India Advisory Services Advisory Fees

27. 26 Structured Obligations FCo1 Advisory Services Advisory Fees Indian Company Loan Indian Bank India Outside India

28. 27 Structured Obligations Advisory Services Indian Company FCo1 India Outside India Advisory Fees Loan Guarantee to repay Loan Indian Bank RBI Approval?

29. Foreign Currency Convertible Bonds

30. 29 Foreign Currency Convertible Bonds (‘FCCB’) Key Features/ conditions: Bond issued by an Indian company; Expressed in foreign currency; The principal and interest are payable in foreign currency; The bonds are required to be issued in accordance with the "Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993”; Minimum maturity of the FCCB shall not be less than 5 years; To be subscribed by a non-resident in foreign currency; Convertible into ordinary shares of the issuing company in any manner, either in whole, or in part. issuance of FCCBs only without any warrants attached.

31. 30 Foreign Currency Convertible Bonds (‘FCCB’) Key Features/ conditions: The ECB policy is applicable to FCCBs. The issue of FCCBs is also required to adhere to the provisions of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004, as amended from time to time. call & put option, if any, shall not be exercisable prior to 5 years issue related expenses shall not exceed 4% of issue size and in case of private placement, shall not exceed 2% of the issue size.

32. 31 Foreign Currency Convertible Bonds (‘FCCB’) Refinancing of FCCB’s AD banks have been permitted to allow Indian companies to refinance the outstanding FCCBs, under the automatic route, subject to the following conditions: i.Fresh ECBs/ FCCBs shall comply with ECB guidelines; ii.The amount of fresh ECB/FCCB shall not exceed the outstanding redemption value at maturity of the outstanding FCCBs; iii.The fresh ECB/FCCB shall not be raised six months prior to the maturity date of the outstanding FCCBs; iv.The form 83 shall clearly mention the purpose of ECB/FCCB as ‘Redemption of outstanding FCCBs’; v.The AD bank should monitor the end-use of funds; vi.ECB / FCCB beyond USD 500 million for the purpose of redemption of the existing FCCB will be considered under the approval route; and vii.ECB / FCCB availed of for the purpose of refinancing the existing outstanding FCCB will be reckoned as part of the limit of USD 750 million available under the automatic route.

33. Rupee Denominated Bonds (Debt raising under ECB)

34. 33 Offshore rupee denominated bonds (RDBs) Structure Maximum limit under Automatic Route $750 millions Borrowing by way of issue of RDBs Any Body Corporate /REITs / InvITs Investor (FATF Compliant) Mechanics Overseas India RDBs may be privately placed or listed in the host country Minimum maturity of 5 years Eligible Indian entities can raise funds by way of RDBs from foreign investors The RDBs may be secured or unsecured and can be listed or unlisted Concept of Deemed ECB. RDBs shall be issued for a minimum period of 5 years Key Considerations Considered as ECB Will lead to shift in exchange rate risk exposure from Indian borrowers to foreign investors Low cost borrowing then local loans Can be used to repay local borrowing Bonds issued by only highly rated corporates might see good demand

35. 34 Offshore rupee denominated bonds (RDBs) Eligible borrowers: Any corporate or body corporate as well as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) Recognised investors: Any investor from a Financial Action Task Force (FATF) compliant jurisdiction (very few countries like Iran, Syria, Afghanistan, Myanmar, etc. are non-compliant) Maturity: Minimum maturity period of 5 years All-in-cost: All in cost should be commensurate with prevailing market conditions End-uses: The proceeds can be used for all purposes except for the following: i. Real estate activities except development of integrated township/affordable housing projects ii. Investing in capital market and using proceeds for equity investment domestically iii. Activities prohibited as per the foreign direct investment (FDI) guidelines iv. On-lending to other entities for any of the above objectives v. Purchase of land Denomination: INR Amount: Under the automatic route the amount will be equivalent of USD 750 million per annum. Cases beyond this limit will require prior approval of the Reserve Bank Similar to RBI framework for overseas foreign currency loans i.e. ECB but RDBs have a liberal interest rate and permissible end-use

36. Questions

37. Thank you S Manoj ca.s.manoj@gmail.com