Ecb Limit Not To Cover 10-Yr Loans

The finance ministry yesterday further relaxed the guidelines for external commercial borrowings (ECB) by keeping long-term loans outside the annual ceiling of $8.5 billion and permitting flexibility in spreads and entitlements for the infrastructure sector, particularly telecom projects.

Loans with a minimum maturity of 10 years and above will not be bound by the parameters governing borrowings which fall within the annual ECB cap. By implication, a larger amount of funds will be made available to non-infrastructure projects within the annual ceiling.

A host of companies led by the nine public sector navratnas and the Tata group will lead the initial ECB rush. The latter is seeking to borrow over $500 million for a period of 20 years.

The ministry has introduced a caveat that borrowings under this segment will be reviewed periodically. Nevertheless, the move is being described as a move to test the waters prior to the withdrawal of the annual ceiling. An official release states that the move has been taken on the basis of the Tarapore committees recommendations on capital account convertibility.

The modified guidelines also permit companies to raise bonds and floating rate notes in tranches of different maturities as long as the average maturity of different tranches taken together satisfies the maturity criteria laid down. In such cases, the longer term borrowings would necessarily precede that of the shorter term, the release adds. Further, firms involved in telecom projects will now be allowed to raise funds upto 50 per cent of the project cost. Licence fees too have been included in the definition of project cost. This has been done keeping in mind that several of the joint venture partners, like AT&T, would be in a position to raise these funds at low rates by using their international brand equity.

Normally, all infrastructure and greenfield projects are permitted to avail ECB to an extent of 35 per cent of the total project cost. The official release states that greater flexibility in entitlements which was earlier allowed to power projects will now be extended to other infrastructure projects on merit. The ministry has also relaxed the interest rate cap on project financing. At present, the guidelines require that interest rates on ECBs should not exceed the Libor plus 350 basis points.

10-year ECBs kept outside annual cap; Tata group, navratnas to lead initial rush

Interest rate cap of Libor plus 350 basis points to be selectively relaxed for project financing

Telecom entitlements raised to 50 per cent of project cost inclusive of licence fee;

Firms freed to raise funds in varying maturities