Foreign Borrowing Norms revised by RBI

The Reserve Bank of India has revised foreign borrowing norms to encourage inflows and ease burden on those with foreign currency convertible bonds (FCCBs). This is in sync with RBI’s counter cyclical policy of encouraging inflows when the rupee is under pressure and restores controls when flows resume.
In external commercial borrowing (ECB), RBI has extended the window under which corporates could avail of loans in aviation and telecom sector. ECB for working capital for civil aviation sector can now be raised until December 31, 2013. Similarly telecom companies have been allowed to finance 3G spectrum rupee loans, which are still outstanding in the telecom operators’ books of accounts, until March 2014. RBI has also allowed ECBs for import of capital goods to include payment for technical know-how and payment of license fees as part of import of capital goods by the companies for the use in the manufacturing and infrastructure sectors as permissible end users of ECB under the automatic route.
In FCCBs, RBI has allowed companies to prepay or buyback these bonds to prevent further losses due to rupee depreciation. RBI typically does not allow corporates to prepay or buyback these bonds as this would reduce the tenure of the loan and the central bank discourages short-term borrowings. RBI has decided that the existing scheme of buyback/ prepayment of FCCBs under the approval route which expired on March 31, 2013 may be continued till December 31, 2013 and shall stand discontinued thereafter.
According to Bloomberg data, there are close to $4.7 billion worth convertible bonds which are due for redemption and the depreciation in the value of the rupee is likely to put promoters in a spot. The data throws up 47 companies with outstanding FCCBs worth $4.7 billion.  FCCBs of a dozen companies are set to mature next year. For 10 companies, these would mature in 2015, for six in 2016 and for the remaining; FCCBs would mature in 2017-19. The largest FCCB dues are of Tata Steel — $546.94 million due for maturity in November 2014, according to Bloomberg data. Sterlite Industries has $500 million FCCBs due in October 2014, while Sesa Goa has $216.8 million FCCBs, also due in October.