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Firms may be allowed to borrow from sovereign, pension funds

24 September, 2015

The Reserve Bank of India (RBI) on Wednesday proposed to allow firms to access a wider pool of investor base while tapping the external commercial borrowing (ECB) market and expanded the list of end-use for such overseas borrowings.

The key change would be that firms could be allowed to borrow from overseas pension and insurance funds besides sovereign wealth funds and overseas regulated financial entities and other long-term investors.

Indeed sovereign funds, especially from Singapore, Norway, Malaysia, Abu Dhabi, have been pretty active as private investors in Indian companies and the proposed changes would allow them to invest in the country through an additional channel.

It would also open a new source of raising capital for Indian companies.

The banking regulator said minimum average maturity of ECB up to $50 million or equivalent would be three years and those for a higher amount will be five years.

While the categories of eligible borrowers have been retained, RBI has proposed to allow real estate and infrastructure investment trusts (REITs and InvITs) to access 

the rupee-denominated ECB market. It said the framework for issuance of rupee denominated bonds overseas will be announced separately.

“The basic thrust of the revised framework is to retain more qualitative parameters for the normal (foreign currency denominated) ECB and to provide more liberal dispensation for long-term borrowings in foreign currency,” RBI said.

RBI has also decided to allow part or full prepayment as well as refinancing of ECB through fresh ECB, subject to conditions.

The monetary authority also expanded the list of purposes for which ECB can be availed beyond its use for capital expenditure and working capital expenses.

It has proposed to allow firms to borrow overseas to repay trade credit (taken for three years for capital expenditure); paying for capital goods already shipped/imported but not paid; purchase of second hand domestic capital goods/plant/machinery; on-lending to infra-special purpose vehicles; overseas subsidiaries and joint ventures.

Moreover, for long-term ECB with maturity of over 10 years, RBI has proposed to limit the end use with a negative list to expand the set of firms who can access the market. It said the long-term overseas borrowing market will be open for all except: real estate activities other than development of integrated township/affordable housing projects; investing in capital market and using the proceeds for equity investment domestically; purchase of land; activities prohibited as per FDI guidelines and on-lending to other entities with any of the above objectives.

The central bank has been constantly changing rules for ECB and rupee denominated credit. RBI in January had tweaked norms for security in external commercial borrowings.

For full draft proposals click here RBI has sought comments on the draft by October 1.

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Firms may be allowed to borrow from sovereign, pension funds

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