Aviation sector allowed to raise up to $1 bn in ECB

After clearing the implementation of relaxed external commercial borrowing (ECB) norms to meet capital requirements in the power and road sectors yesterday, the finance ministry today paved the way for implementing the measures announced in the Budget for the airline sector.

Keeping in mind the immediate financing concerns of the civil aviation sector, Finance Minister Pranab Mukherjee, in his Budget speech, had announced companies in the aviation sector would be allowed to avail of ECBs for one year for working capital and refinancing of working capital rupee loans.

ECBs under this provision would have a ceiling of $1 billion for the entire civil aviation sector. The cap for individual airline companies has been fixed at $300 million. This may be availed either in a lump sum or in tranches, depending upon the utilisation of the limit during a particular financial year.

Saying the Reserve Bank of India (RBI) would come out with the relevant circulars and notification for implementing these measures within a week, Joint Secretary, (capital markets), Thomas Mathew, said the proposals of individual companies would be considered by RBI under the approval route, based on parameters such as cash flows and the capacity of individual companies to repay these loans from their foreign exchange earnings.

To increase access to ECBs, RBI would consider relaxation in the average maturity period for ECBs above $20 million from five to three years, he said, adding the central bank would also keep a tab on the utilisation of the funds.

“Working capital loans are short-term and attract higher interest rates. Raising these through ECBs would reduce costs by 200 basis points,” said an Air India official, on condition of anonymity.

On the possibility of raising the $1-billion limit, Mathew said, “We will answer this issue when we reach such a situation.” The civil aviation ministry has already demanded this limit be raised to $2 billion.