adr fccb ecb.ppt

8/10/2019 ADR FCCB ECB.ppt

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www.rbi.org.in, retrieved on 03-11-2013

3/12/2014 RKS SOM.GBU INDIA
http://www.rbi.org.in/http://www.rbi.org.in/


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BackdropThree Routes to Overseas Capital in India

1.Foreign Equity Participationa. Direct Investment

i. FDI

ii. GDRs/ADRsb. Indirect Investment: FIIs/Portfolio Funds2.Debt Route:

External Commercial Borrowings (ECBs)

3.Hybrid Route:Foreign Currency Convertible Bonds (FCCBs)



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3

Financing Strategies of Indian Companies

via Foreign Markets

Domestic Market Equity Share

Preference Share

Private Placement

Syndicate Loan

Convert ib le Debentu re

Rights Issue

Bonus Share

Preferential Allotment

International Market

GDRs (Equity)

ADRs (Equity)

FDIs/FIIs

ECBs (Debt)

FCCBs (Hyb rid )

Hedge Funds Venture Capital

Private Equity



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Introduct ion..

Investors demand for DRs is growing faster:During 1990 and 2001,the volume of ADRstrading inc reased exponent ia lly $75bn to$1185bn and $4,365bn in 2008 and (2.79 tri l l ion2012)

Cost-effectiveness, convenience, liquidity andoperational risks are lower than the risk ofpurchasing and safekeeping ordinary sharesoutside the country.

Demand of ADRs/GDRs, ECBs/FCCBs is driven byincreasing desire of individual and institutionalinvestors.



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6

ADR/GDRs

J.P. Morgan-the first DR program in 1927.

A negotiable certificate that represents a non-U.S. companyspublicly traded equity.

US $ denominated equity based instruments

traded freely on a major exchanges

GDRs are listed in London & Luxembourg

ADRs listed and traded in US stockexchanges.



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7

Structure of DR Programme

ISSUER COMPANY

From INDIA

DEPOSITARY BANK(Bank of New York, US)

Foreign Investors

US/UK Citizen

CUSTODIAN

(Local Bank in Mumbai)

Clearing HouseEuroclear / Cedel

Depositary Trust Co.

Foreign Stock Ex.NYSE/LSE/LxSE

Underlying

Equity Shares

DividendIn INR

DividendIn US $ Investing

Capital

ForeignCapital

Inform Depos i t ion of Underly ing

Shares to Issues ADRs

ForeignListing

Issue

ADRs



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ADRs/GDRs

Issued by depositories, mostly InternationalBanks.

Companies - Depository - Intl. Investors. Each GDR/ADR entitles the owner a specific no.

of underlying shares.

Issuing Companies pays dividend in Rs.,Depository converts it to $ and distributes to Intl.Investors.

GDR/ADR holders have Rights to Dividend, to

Subscribe new shares, to Bonus, Voting Rights Under the depositarysagreemen t, a Depositary would, Not to vote

the shares at all , or /and Vote the shares w ith the major i ty of the rest

of the sharehold ers.


T bl R i i C it l ith ADR /GDR


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Table - Raising Capital with ADRs/GDRs:Types of Depositary Receipt Programmes

Particulars Unsponsored Sponsored

Level-I Level-II Level-III Rule 144A DRs GDRs

Description Not sponsoredby the issuer

Unlistedprogrammein the US

Listed on theUSexchanges

Sharesoffered andlisted on theUSexchanges

Privateplacement toqualifiedinstitutionalinvestors (QIB)in the US market

Global offering ofsecurities outsideissuers home

country

Purpose Broaden theshare-holderbase with theexisting shares

Broaden theshareholderbase with theexistingshares

Broaden theshareholderbase with theexistingshares

Raising thecapital withfresh issueof shares

Raising thecapital withfresh issue ofshares

Raising thecapital with freshissue of shares

Trading OTC US OTCmarket

AMEX, NYSE,NASDAQ

AMEX,NYSE,NASDAQ

US privateplacementmarket -PORTAL

US exchangesand non USexchanges

SECregistration

Register underForm F-6

Registerunder Form

F-6

Registerunder Form

F-6

Registerunder

Forms F-1and F-6

None Varies dependingon structure of

US offering

US reportingrequirements

Exempt underRule 12g3-2(b)

Exemptunder Rule12g3-2(b)

Form 20-F* Form 20-F* Exempt underRule 12g3-2(b)

Varies dependingon structure ofUS offering

Source: 2004/www.adr.com by J.P.Morgan/10.12.2003 , *Financial statements must be partially reconciled to US GAAPRule 12g3-2(b) SEC Information Supplying Exemption

PORTALPrivate Offerings Retail Trading Automated Likage, 144A allowed immediate resale, no holding pd.3/12/2014 RKS SOM.GBU INDIA


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Entry A lternat ives

There are five alternative ways to enter US

Securities Market: -a) Public listings of shares on the NYSE, AMEX or

NASDAQ, i.e., listing shares without raising new

funds, through Sponsored ADRs;

b) Private placements;

c) Rule 144A offerings, with re-sale exemption for sale

to and among QIBs;

d) Public offerings where a company goes to the US

public markets to raise funds; and

e) Level I ADRs, trading on the pink sheets without

registration with the SEC.



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GDR/ADR rou te op ted :Foreign Currency, Low cost, Large volume of capital.

Brand Visib i l i ty at global LevelSustainable Prof i t sharing with strategic foreign

inv esto rs , i.e. Long-term equi ty partnership,

Inorganic Growth through acquiring companies abroad currency

for M&Atransforming themselves into global multinationals

Dividend is paid in INR. i.e., companies are not exposed

to foreign exchange risk.

Bu i lding an Internat ional Prof i le

Diversi f ied Investor/shareho lder base/revenue base

Gateway to l iquid internat ional capital Market and

Corpo rate governance.



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GDR/ADR rou te op ted..

Creat ing Stock Option for US employees-

Attract ing & retaining Quali ty talent to US/Europe

ESOP thru ADRs has helped reducing the attr i t ion rate in IT

companies (Infos ys)

Info sys has pion eered the grant of ESOPs to its emp loyees t ime-to-

t ime. First , the com pany had com e out w ith ESOP plan in 1998 and

1999

Investors gets intl. portfolio diversification, that too in US$

and enjoy all right at par with domestic investors

While faces Costly currency conversion of dividends,

Unreliable custodial services and Poor information flow

Arbitrage Opportunity: encash Premium over the foreign market



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3/12/2014 RKS SOM.GBU INDIA 13

Type Stock Exchange of

Listing

2006 2013

GDR LuxSE 52 59

GDR LSE 26 24

GDR PORTAL 75 73 Euro MTF

ADR NYSE 11 09ADR NASDAQ 03 02

ADR/ GDR OTC 03 04

GDR DFIE 02 --

SDR Singapore -- 07None SE 130

Total 172 308

Frequency Distr ibu t ion of List ing s of Indian Firms on

Foreign Exchanges


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Reasons for so few ADRs. As; SEC of USrequires a stringent reporting norms Reportingaccording to US GAAP and Higher Listing fees

Rule 144 a private placement, and Regulation S offeringto non US person, a non-US tranche of a Rule 144A,

traded outside the US, not registered under US SECTraded on 16 designated offshore Securities Market(DSOM) SEC treats it as an Offshore transaction.



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Issue from India, China, UK, Japan and

Austral ia respect ively represents top 5

coun tr ies w i th DRs prog rams.

Asia Pacific - 1799 W & E Europe -1346

Middle East242 Latin America - 288

India DRs value traded US $69.8 bn, 2nd to

China, where as volume traded 2.43 bn, 4th

behind China, Taiwan and Japan in Asia

region.

Info sy s and ICICI Bank stands among top 5

DRs by value traded and market capi ta lizat ion

respectively.


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1460

1527

1681

1729

1791

1819

1847

1817

1858

1912

1984

206

0

2130

2

287

458

501

520

570

563

537

504

498

485

478

428

404

396

0

500

1000

1500

2000

2500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2013

Num

ber

Year

Total Sponsored Vs US L isted DRs

Total Sponsored DRs US L is ted DRs


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FactorsInternational investors look for companies, which

have the strength on following forms: Internationally significant capacities and

technology;

Strong fundaments for several years; A consistent record of profitability;

International presence/involvement and aglobal investor appeal, and

Operations in industries with goodprospects.



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Factors.. ADR returns are affected by respective home market

factors rather than by US market movements. ADR return responds negatively, on the

strengthening of home currency, against US $.US investors are exposed to incremental risk

from foreign equity market. Price of an ADR fluctuates based on the variation ofprice of underlying shares, dividend payouts, andstock-splits. Usually, the two, track each other, one-for-one.

If, one deviates from the other, provides, anopportunity for international arbitrage.



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Sponsored ADRs

A sponsored American Depositary Share

(ADS) is a mechanism to convert theexisting equity shares listed in India, intoADS for trading in US market, and realize

the proceeds net of issue expenses. Companies do not issue new shares.

December 2002, RBI allow ed Indian com panies

to o f fer their domest ic investors , an opt ion of

conver t ing their domest ic sh are into ADRs that

is l is ted on the LSE, LxSE, and NYSE etc.



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Sponso red ADRs..

Infosys was the first Indian company to take

advantage of the changed procedure and wentto offer more shares to its overseas investorswithout actually issuing fresh shares.

On February 18, 2005, Infosys ADR wastrading on NASDAQ at $72.8. Simultaneously,in India, available at Rs 2,174. Given an

exchange rate of Rs. 43.8 per dollar, the ADRshould have quoted $50 approximately toeliminate arbitrage.



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Fungibi l i ty

Interchangeability of any security with in a class pre-specified with.

one-way fungibility, investors in ADRs/GDRs couldconvert their DRs into underlying domestic shares,without the freedom to reconvert it back into

ADRs/GDRs. Once the ADRs/GDRs are converted into domestic

shares, the depository redeems DRs. Only on afresh issue, ADRs/GDRs could be reinstateted. Thatleads to loss of liquidity in the overseas market, i.e. agradual reduction in the availability of ADRs/GDRs inthe overseas market.



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Fungibi l i ty

In two-way Fungibility, investors (foreign

institutional or domestic) in any company thathad issued ADRs/GDRs can freely convert the

ADRs/GDRs into underlying domestic shares

and reconvert the domestic shares further intoADRs/GDRs, depending on the market

movement and the direction of price change.

Reverse fungibility - allowing re-conversion of the cancelled ADRs/GDRs

back into depository receipts.


C I f T h l i Li it d
http://localhost/var/www/apps/conversion/tmp/scratch_1/Documents%20and%20Settings/a/My%20Documents/4.10.2009%20Thesis%20work/4.10.2009%20Thesis%20work/Fungibilityhttp://localhost/var/www/apps/conversion/tmp/scratch_1/Documents%20and%20Settings/a/My%20Documents/4.10.2009%20Thesis%20work/4.10.2009%20Thesis%20work/Fungibility


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Case: Infosys Technologies Limited

1. $70.38million

at 22% prem iumover BSE price 3201/-March1999-Listed in NASDAQ.

Offered at 27.88 per ADS, sold @ $ 34 perADSNet Proceeds $66.90

Issued 20,70,000 ADSs underlying 10,35,000Equity share @10/

ADRs traded at a premium of 193% to the domestic shares in year 2000

2. $294 million Sponso red secondary of fering-Offered 5.22 mnADS/2.61 mn equity share. Sold at $49 per ADS, 26% premium over Rs3593.30 in BSE- July 2003

3. $ 1.1 billion Converted 16 million share or 6% of its locally listed

shares. At $ 67 per ADS, 34% premium over 2171.2in NSE- June 2005.

4. $ 1.6 billion 3rdSpons ored secondary offer ing - con verted 30mn s hares at $ 53.50 per ADS, at 6% prem ium - Nov

2006



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Case: Infosys Technologies LimitedObject ive:

Become under NASDAQ 100 ( require at least 10% float)-19.13 %; Increases LiquidityEncash arbitrage opportunity & Premium in NASDAQEnhance Brand equity & Create stock OptionAccelerate sales and Marketing initiatives

Make Strategic Investors through ADR issue- investor getsgood price and company gets a strategic partner withoutdiluting equityAcquisition currency to expand in German Market ( Largest

economy and IT spender in Europe), tapped only 2%- ProvideBroad base Revenue.Struck a deal of $ 300 million with ABN Amro, substantiatingtheir core-competency.



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Infosys Technologies Limited Share Holding Pattern: (in Percent)

ADSs held in the name of Bankers Trust Company, Depositary to the Companys Sponsored ADR offering.Source: Infosys Report, 2005-06, 2012-13

Category 2002 2003 2004 2005 2006 2007 2013

Promoters 28.72 28.42 26.50 21.76 19.50 16.54 16.04

Non-promoters 71.28 71.58 73.48 78.24 80.50 73.35 73.96

Institutional

Investors

FIs/Bank

FIIs

9.41

36.599.26

39.186.77

41.824.75

42.876.44

37.916.27

32.5517.51

40.52

Others

Indian Public

ADSsRest

12.51

3.209.57

10.59

3.269.29

9.02

7.947.95

19.00

8.041.95

15.49

13.956.71

21.83

19.11

3.70

11.17

12.34

2.42

Total 100.0

0 100.00 100.00 100.00 100.00 100.00 100.00

Total Foreign

Share holding 40.44 43.45 50.46 52.54 56.35 55.36 55.28



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Infosys' ADS Premium Compared to Price Quoted on NSE

0

5000

10000

15000

20000

Months 2000-01

Price(INR)

0

20

40

60

80

100

120

140

%P

remiu

ADS Price 1771 1367 1582 1192 1427 1214 1283 1123 8614 1121 8582 6099

NSE Share P rice 8122 6999 8310 6761 8327 7361 7133 7184 5694 6793 6242 4084

% Premium 118 95.4 90.4 76.4 71.4 65 79.9 56.3 51.3 65.1 37.5 49.4

28/0

4

31/0

5

30/0

6

31/0

7

31/0

8

29/0

9

31/1

0

30/1

1

29/1

2

31/0

1

28/0

2

30/0

3


I f ' ADS P i C d t P i Q t d NSE


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Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13

ADR 3,028 2670 2506 2563 2423 2575 2672 2424 2422 2822 2968 2989

Equity 2855 2484 2520 2501 2472 2633 2609 2469 2436 2815 2960 3005

Premium 6.41% 7.49% -0.56% 2.48% -1.98% -2.20% 2.41% -1.82% -0.57% 0.25% 0.27% -0.53%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Premium

in%

PriceinINR

2012-13

Infosys' ADS Premium Compared to Price Quoted on NSE



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Infosys

During 2012-13, Infosys Ltd ( Infosys

Tech. Ltd.) shifted from NASDAQ toNYSE, LSE and Paris Stock Exchange.

The delisting and listing is made toleverage the NYSE Euro Nextpartnership which are closer to Infosyss

investors, clients and employees.



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Outcome Foreign listing of Indian companies on one way have

opened them to follow international capital market

practices and brought frame for efficiency of Indianmarket.

The quality of DR programmes in Indian context has

improved to align with the SEC, requirements and the

return to the expectation of US investors.

Adherence of the AS, depict profitability and credit

worthiness of an issuer company across.

Market segmentations on cross-border listing tend toevaporate on faster inflow of information and on lifting of

information asymmetry

Brought parity in price behaviors in two markets.



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FCCBsA hybrid bond, quasi -debt instrument with an

attached call option, issued to foreign investorsin foreign currency at a spread-over Libor,convertible into equity shares, either in whole/

part, at the option of the investor, at thespecified strike rate, either on maturity or froma date.

LondonInter-Bank Offered Rate(LIBOR) is a rate at wh ich afel low London bank can borrow money from o ther banks. Ratecalculat ions incorporate var iables such as t ime, matur i ty andcu rrency rates. There are hundreds of LIBOR rates reported eachmonth in num erous currencies. 6 Month LIBOR is the LIBOR for asix month depos it in U.S. Dol lars.


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Features:

FCCBs provide low cost funds,

As an alternative to straight ECB to sweetendebt by adding a conversion privilege thatlowers the coupon rate, even issued at Zerocoupon.

paying YTM of around -1.0 to 4.5% onfive-year convertible bonds, if notconverted into shares.

FCCBs have the call and put options,

FCCBs leads to Price discovery, as analternative to common stock when the marketundervalues equity.


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Advan tage to Issuers.. FCCBs facilitate debt swap. Tata Motors, Interest costs

declined by 47% Prospect of getting a higher conversion premium in

rising market

No interest outgo rather earn interest income till the

FCCBs Proceeds is spent. (US Fed rate moved up from1.0% during Jan-June 2004, to 2.50% in 2005.)

Upside investment in equity, and debt element protectsthe downside.

A investment destination for global investors todiversify portfolio, in rising stock market.

Market index is on slope, FCCBs a choice and on slidenon- conversion a choice.


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Star t ups & Trends..

Early 1990s, euro issues were skewedtowards GDRs.

During May 1992 to December 1994:GDRs - 48 issues- US $ 3950 million

FCCBs-10 issues- US $ 1016 million

Rise in FCCBs issue from $190million in year2003, to $2.25 billion in 2004 ,continued till2007 end.

High performance of the stock market during

2003 to 2007, and stronger INR helped toreduce the cost of borrowing for Indiancompanies.


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Year Amount in US $ Million Number of Issue

1992 -- 0

1993 550 6

1994 533.75 6

1995 -- 0

1996 337.31 5

1997 175 1

1998 -- 0

1999 26.5 1

2000 -- 0

2001 -- 0

2002 126.6 1

2003 212 4

2004 2362.88 23

2005 3731.57 54


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Sensex - Monthly Price Trend (2006)

9919.8

9

10370.2

4

11279.9

6

11851.9

3

10398.6

1

10609.2

5

10743.8

8

11699.0

5

12454.42

12961.9

13696

.31

13786

.91

0

2000

4000

6000

8000

10000

12000

14000

16000

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Months

P

rice


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Sensex - Monthly Price Trend (2007)

14090.9

2

1

2938.0

9

13072.1

13872.3

7

14544.4

6

14650.5

1

15550.9

9

15318.6

17291.1

19837.99

19363.1

9

20286.9

9

0

5000

10000

15000

20000

25000

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Months

P

rice


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Sensex -Monthly Price Trend (Jan 2008 - Aug 09)

17648.71

17578.72

1564

4.44

1

7287.31

16415.57

13461.6

14355.75

14564.53

12860.43

9788.06

9

092.72

9647.31

9424.24

8

891.61

9708.5

11403.25

14625.25

14493.84

15670.31

15240.83

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Months

Price


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Macro Econom ic Factors:Growing use of converts by Ind ian companies

was in l ine w ith the internat ional trend s. Global ly,579 companies issued more than $150 bi l l ionworth of converts in 2003.

Low interest rate (LIBOR/Federal rate)

Buoyant equity markets, Liberalised norms,

Uncertainty in the global capital markets,

Issuer creditability,

Rupee Appreciation against US $,

Attractive YTM.
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Macro Econom ic Facto rs..

Exchange Rate Variat ion and Interest rate

differentialaffects market prices of FCCBs.

Foreign investors perception about the

company,equ i ty market and convers ion p r ice

offered is another issue.


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Tata Moto rs FCCB issued , YTM on seven-yearper iod 3.75% and equ i ty convers ion premiumas high as 60% over the market rate on the dayof the issue.

In November 2004, holders of Tata Motors haveconverted more than 22% of the $100 million bonds into

equity shares.At the time of issue (July 2003) conversion price was

of Rs 250.75.

While on November 28, 2004, the scrip closed at Rs

409/-, i.e. the conversion was at a 63% discount.

Macro Econom ic Facto rs..

I d i C T t M t


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Ind ian Case: Tata Moto rs

Accessed international market in July 2003 and April2004, by two issues of FCC Notes, US $500 mn.

Had outlined a capex program of Rs 6000 crore for theperiod 2003-08, via out of several financing optionsalong with of FCCB.

Its $ 100 million offering in July 2003 was the firstconvertible bond offering out side India in over fiveyears, had received subscription to the tune of$1billion within two hours of opening, reflected highconfidence of investors in Tata Motors future equity

return. This issue had opened up the market for otherissuer of FCCBs.

Purpose:Proceeds of the bond was to retire companysexpensiveborrowings and meeting other capital expenditure.

T t M t


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Tata Motors

2nd issue of $400 million, 2004, over-subscribed tentimes and received investor interest to the extent of $ 4

billion. The offer was innovative and had dual-tranchebull-bear structure.

First ever multi-tranche convertible offering by anIndian company; with the first tranche being ever

negative yield structure (an aggressive yield structure)and the second tranche achieving longest tenure ofseven years with the highest conversion premium of60%.

TML

42

T t M t
http://localhost/var/www/apps/conversion/tmp/scratch_1/TML.docxhttp://localhost/var/www/apps/conversion/tmp/scratch_1/TML.docx


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Tata Motors

1. Outcome: with large cash accrual of Rs 8,747 millionin 2003-04 had helped to pre-pay a substantial part of

its outstanding debt.

2. TMLs earlier US $100 million FCCB issue wasconverted well, helped the company, to improve itscapital structure. (equity had di luted from 319.9 m il l ion

sh ares in financial year 2003 to 371.1 mn in 2004). TataMotors share had gained more than 210% during 2003-04.

3. Capital cost declined by 47% largely due to swapping

(to retire high cost debt) its high costs debt with freshfunds from FCCB issues. Profit after Tax (PAT)increases, largely due to higher savings in interestcosts, more than expectation.

43

T t M t E C i


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Tata Motors Easy Conversion

Helped, to further restructure its debt portfolio.

By March 31, 2004, US $ 75.913 million ofthese Notes were converted into the ordinaryshares or GDSs and only US $ 24.09 millionwere outstanding.

As on March 31, 2004, the Foreign CurrencyLoan of the company stood at US $ 161 million.

The companys borrowing as on March 31,2004 stood at Rs. 1259.77 crores as comparedto Rs. 1458.31 crores on March 31, 2003.

44


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FCCBs and ECBs

All-in-cost for FCCBs is better than the

corresponding debt instruments (ECBs). Thecoupon on ECBs is a spread over the rulingbenchmark of Libor, which is a floating rate.FCCBs, in contrast, carry a fixed coupon.

Instrument has equity conversion built into it,the coupon on the bonds works out muchcheaper than ECBs and has to be paid at theend of the tenure.

Well-capitalized, moderate growing companywith no option to dilute equity prefers ECBs,like public sector corporates.

Rapidly growing companies for wider investorbase prefer FCCBsroute.


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46

RBI In tervent ion 2008 -09

RBIsCircular dated December 8, 2008 allowed

buyback of FCCBs upto December 2008extended further upto December, 2009. Issuer can buyback FCCBs under automatic

route upto any limit out of existing foreignresources or by raising fresh ECBsif effectedat minimum discount of 15% on the bookvalue.

FCCBs up to $ 50 million can be bought backwith prior RBI approval out of Rupee

resources representing internal accrual, ifeffected at a minimum discount of 25% on thebook value.


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47

RBI In tervent ion 2008 -09

RBI had ear lier allowed FCCB buyback March

2003 to Sept . 2003, under the automatic rou teup to a l im it of $100 m il l ion,

i f the buy back w as made of local resources andw ithou t any l imi t , or

i f the buyback was out of Exchange EarnersForeignCurrency Funds or inward remit tances toward theequi ty

subject to inter-a lia one cond i t ion- buy back shouldbe effected at face value, and not b ook value.

Book value is the face value of FCCB p lus theinterest accru ed on the bond t i l l the date ofbuyback.

ECB E t l C i l B i


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ECBs :External Commercial Borrowings

ECBs route helped to accelerate forex inflowat a lower cost debt fund infusedcompetitiveness.

Warded off threat emerging out of debt crisisin 1991, converging into an opportunity in

rejuvenating Indian industries. ECBs includes commercial Loan



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49

ECBsserves six major objectives at Macro/Micro level

1. Raising debt capital and its inflow;2. Borrowing in Forex, meeting import obligation;

3. Bearing low interest rate and enhancingproduct competitiveness globally;

4. Long-term fund without issuing equity sharesand with no future fall of EPS;

5. Adding value to the firm, and for shareholders;and

6. Inflow of FOREX helps RBI to stabilize INRconversion value & maintaining adequateimport and investment cover for.

Objectives-



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El igib le Borrowers arecorporates registeredunder the Indian Companies Act, except

financial intermediaries. (such as banks,financial institutions, housing finance companiesand NBFCs)

ECB investments in real sector, industrial sector,

especially the infrastructure are allowed onautomatic route.

Recogn ized Lenders areInternational Banks,International Capital Markets, Multilateral

Financial Institutions e.g. IFC, ADB, CDC;Export Credit Agencies, Suppliers of Equipment,

Foreign Collaborators.


ECB P li


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ECBs Policy

Relied upon, on two major factors;

i. To Keep maturity for redemption longer andii. To Borrow at relatively lower cost.

Provide flexibility in borrowing by Indiancorporates, maintaining a prudent limit forefficient debt management for infrastructuredevelopment and export financing.

Previous guidelines, 2004 issued by the Ministry

of Finance, Government of India has beenreplaced in July 2008 by RBI, towards regulatinginflow of debt from across the boundaries, in apost sub-prime era.



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Amoun t and Matur ity :

Maximum amount of ECB that can be raised by aIndian corporate is US $ 500 million during afinancial year.

Minimum Average Maturity:

3 yrs. For loan < US $ 20mn.5 yrs. For loan > US $ 20mn.

Corporates could avail an additional amount of US

$ 250 million with average maturity of more than 10years under the approval route, over and above theexisting limit of US $ 500 million under theautomatic route.



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A ll-in-cost cei l ing

-Interest Rate Ceilings: All-in-cost ceiling over 6-month LIBOR

1. 6 month LIBOR+ 200 bps for 3-5 yrs.

2. 6 month LIBOR+ 350 bps for > 5 yrs.

(LIBOR+ bps+ Forward cover i.e. Hedgingcost + Arranger Fees + Guarantee fee +Commission)

Price Ceiling on ECBs


ECB fund is permitted towards :-
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C u d s pe tted to a ds

Investment w i th in the Country:

Longer Matur i t ies fo r Capital Intens ive Projects Import of Capital goods, as classified by DGFTin the Foreign Trade Policy, by new or existingproduction units,

Real sector, Industrial sector, including small and medium

enterprises (SME) and Infrastructure includes power,

telecommunication, railways, road including

bridges, sea port and airport, industrial parks,and urban infrastructure (water supply,sanitation and sewage projects).

End-Use Pattern of ECBs3/12/2014 RKS SOM.GBU INDIA

ECB f d i itt d t d
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ECB fund is permitted towards

Overseas Investment: Overseas direct investment in JV / Wholly

Owned Subsidiaries, subject to the existingguidelines on Indian Direct Investment in

JV/WOS abroad.

ECB raised for foreign expenditure forpermissible end-uses shall be parked overseas

and not to be remitted to India. The fundsshould be invested in such a way that theinvestments can be liquidated as and whenfunds are required by the borrower in India.



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End -Use Restr ict ion :

Utilization of ECB proceeds is not permitted for on-lending or investment in capital market or

acquiring a company (or a part thereof) in Indiaby a corporate,

in real estates,

for working capital,

general corporate purpose and

repayment of existing Rupee loans.



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Pre-payment:Upto US $ 500 million may be prepaid by

an authorized dealer banks without prior approval of RBIsubject to compliance with the stipulated minimumaverage maturity period as is applicable to the loan. (if metout of inflow of foreign equity capital).

Swapping/Ref inancing: The existing ECB may berefinanced on raising a fresh ECB. But, the fresh ECBshould be raised at a lower all-in-cost, maintaining theoriginal outstanding maturity period.

Hybr id Debt:Conversion of ECB into Equity is permitted,covered under the Automatic Route for FDI, or undersectoral cap. The pricing of shares shall be as per SEBIand erstwhile CCI guidelines/regulations.



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f low of funds across boundaries:

Factors are considered important1. Interest Rate Disparity

During 1993-94 PLR was 19% while LIBOR was3.391%

By 2003-04 PLR is 11% and LIBOR 1.210%2. Exchange rate fluctuation

Uncertainty of burden of future debtredemption, more cost: stable Rupee is a

boosting factor

ECBs Inflow Quarterly


ECB Pol icy:
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ECB Pol icy:1. Larger to Small Scale Benefits

2. Longer Maturities for Capital Intensive Projects

3. Debt Restruc tu ring4. Bear in g on Market & L iq uid ity as

i. Fuels the liquidity and inflation both

ii. Interest rate increases

iii. Domestic debt market suffered

iv. FOREX swells5. Balan ce o f Paymen t affec ted as Pressure of outflow on

i. Current account of BOP ( paying interest and otherservice charge as a cost of capital) Current account deficitdecreases Rupee conversion value

ii. Capital account ( can be offset with larger inflow ofcapital)


Indias External Debt Service Payments


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Amount that a Country ought to borrow isgoverned by two factors, how much foreign capi tal the economy can

absorb effic ient ly and

debt i t can serv ice wi thou t r isk ing externalpayment prob lem .

Each factor depend on the quality ofeconomic management.

Gross external debt is to repay principal,with or without interest, or to pay interest,with or without principal.




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Indias External Debt Service Payments..

Gross debt is the stock of liabilities, onwhich debt service is calculated.

The Government of India has beenprudently slashing its direct external debt

share from 41.6% in 2003 to 23.9% in2009. The corporates and otherinstitutions have directly bearing more inaggregate external debt enhancing from58.4% to 76.1% during the period.


Determining Factors influencing PEDM Policy :


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Determining Factors influencing PEDM Policy :-

ECB Inflows- ECBs share in foreign capital inflows Debt / Service Ratio- In 1990-91 35.3% to 4.6% by 2008-09. Falling Libor- Lower Interest payment Rupee Stability

Short term / Total Debt Balance -of-Payment : Domestic Interest Rate: Inflationary Pressure:

Forex Cover: Payment Schedule: