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External Commercial Borrowings (ECB)

External Commercial Borrowings (ECB)
External Commercial Borrowings (ECBs) include bank loans, suppliers' and buyers' credits, fixed and floating rate bonds (without convertibility) and borrowings from private sector windows of multilateral Financial Institutions such as International Finance Corporation.

Euro-issues include Euro-convertible bonds and GDRs.

In India, External Commercial Borrowings are being permitted by the Government for providing an additional source of funds to Indian corporates and PSUs for financing expansion of existing capacity and as well as for fresh investment, to augment the resources available domestically. ECBs can be used for any purpose (rupee-related expenditure as well as imports) except for investment in stock market and speculation in real estate.

External Commercial Borrowings (ECB) are defined to include
commercial bank loans,
buyer’s credit,
supplier’s credit,
securitised instruments such as floating rate notes, fixed rate bonds etc.,
credit from official export credit agencies,
commercial borrowings from the private sector window of multilateral financial institutions such as IFC, ADB, AFIC, CDC etc.
and Investment by Foreign Institutional Investors (FIIs) in dedicated debt funds

Applicants are free to raise ECB from any internationally recognised source like banks, export credit agencies, suppliers of equipment, foreign collaborations, foreign equity - holders, international capital markets etc.

REGULATOR
The department of Economic Affairs, Ministry of Finance, Government of India with support of Reserve Bank of India, monitors and regulates Indian firms access to global capital markets. From time to time, they announce guidelines on policies and procedures for ECB and Euro-issues.

ECB GUIDELINES
The important aspect of ECB policy is to provide flexibility in borrowings by Indian corporates, at the same time maintaining prudent limits for total external borrowings. The guiding principles for ECB Policy are to keep maturities long, costs low, and encourage infrastructure and export sector financing which are crucial for overall growth of the economy.

The ECB policy focuses on three aspects:
Eligibility criteria for accessing external markets.
The total volume of borrowings to be raised and their maturity structure.
End use of the funds raised.


The ECB and the FCCB (Foreign Currency Convertible Bond) are amongst the most preferred ways of raising money theae days, specially when the markets are down and companies are not sure of being able to raising enough funds through IPO and FPOs. Moreover, these involve lesser costs than raising equity.

Source: banknetindia.com

For more info on ECBs, please refer to the link below [the ICAI's article on ECB - a bit old one though]

http://www.icai.org/icairoot/publications/complimentary/cajournal_may04/p1216-19.pdf

Comments

  1. hey there.. can you please elaborate on the issue whether between the most preferred ECB and FCCB route... which one of them is more economical with less restrictions and regulatory compliances?

    ReplyDelete

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