ECB norms relaxed for infrastructure companies...

In a move aimed at enabling infrastructure companies to meet their increased funding requirements, the Government on Monday eased the external commercial borrowing (ECB) norms to permit bringing in up to $500 million for rupee expenditure each year. The new norms will come into effect from the date of notification by the Reserve Bank of India.

Announcing the relaxation, an official statement here said: “Considering the huge funding requirements, particularly for meeting rupee expenditure, it has been decided to enhance the existing limit of $100 million to $500 million for borrowers in the infrastructure sector under the approval route.”

According to estimates, the infrastructure sector would be in need of about $500 billion over the next five years. The easing of ECB norms is expected to raise the infrastructure companies’ access to overseas borrowings although it is not certain as to whether it would render it easier to mop up funds abroad in view of the ongoing global crisis in the financial market. The official statement made it clear that borrowings by companies in excess of $100 million should have a minimum average maturity period of seven years. Also, the overall cap of $500 million per company each year under the automatic route has been retained.

Alongside, owing to the wide credit spreads now prevailing in global financial markets, the Finance Ministry has also decided to allow companies to pay higher interest rates on such borrowings with a maturity of over seven years. Under the liberalised norms, corporates have now been permitted to pay up to 4.5 per cent over the six-month LIBOR (London inter bank offered rate) as against the earlier cap of 3.5 per cent. At present, the six-month LIBOR is pegged at 3.016 per cent.

However, for companies going for ECBs with a maturity of three to five years, the interest rate has been left unchanged at up to two per cent above LIBOR.

Likewise, the interest rate ceiling on overseas borrowings of more than five years and up to seven years has also been pegged at 3.5 per cent above LIBOR.

For companies other than the infrastructure sector, the existing ECB norms will continue to be in operation.

Source: The Hindu