By Nitesh Tiwari, Associate
The Reserve Bank of India (“RBI”) through its circular dated January 21, 2013 being circular number RBI/2012-13/387 A.P. (DIR Series) Circular No.78 (the “Circular”) has allowed companies in hotel sector to avail External Commercial Borrowings (“ECBs”) for repayment of outstanding Rupee loan(s) availed of from the domestic banking system and / or for fresh Rupee capital expenditure.
In terms of Annexure to A.P. (DIR Series) Circular No. 5 dated August 1, 2005, ECB refers to commercial loans in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments e.g. floating rate notes and fixed rate bonds, availed from non-resident lenders with minimum average maturity of 3 years. ECBs can be accessed through two routes – automatic route and approval route.
Till now ECBs were only available to companies in manufacturing and infrastructure sectors, which are consistent earners of foreign exchange. However, upon review the RBI has though the Circular allowed companies in hotel sector to avail ECBs repayment of outstanding Rupee loan(s) availed of from the domestic banking system and / or for fresh Rupee capital expenditure. The Circular has further clarified that ECBs in the hotel sector can be availed by companies with project cost of 250 crores or above. A cost valuation report will have to be submitted by the Authorized Dealer while forwarding the ECB application. The aforementioned companies will have to fulfill the following conditions as well:
- Such companies shall be a consistent foreign exchange earner during the past three financial years;
- Such companies must not be in the default list/caution list of the RBI;
- Such ECBs shall only be utilized for repayment of the Rupee loan(s) availed of for capital expenditure incurred earlier and are still outstanding in the books of the domestic banking system and / or for fresh Rupee capital expenditure;
- The maximum permissible limit of ECBs that can be availed of by such companies is 75 per cent of the average foreign exchange earnings realized during the immediate past three financial years or 50 per cent of the highest foreign exchange earnings realized in any of the immediate past three financial years, whichever is higher;
- In case of Special Purpose Vehicles which have completed at least one year of existence from the date of incorporation and do not have sufficient track record/past performance for three financial years, the maximum permissible ECB that can be availed of will be limited to 50 per cent of the annual export earnings realized during the past financial year;
- The maximum ECB that can be availed by an individual company or group, as a whole, under this scheme will be restricted to USD 3 billion.