However, RBI has laid down few conditions to be followed and these modifications to the ECB guidelines will come into force with immediate effect. RBI said that the business activity of the SPV should be in the infrastructure sector. Besides that the infrastructure project is required to be implemented by the SPV established exclusively for implementing the project.
RBI also said that the ECB proceeds should be utilized either for fresh capital expenditure (capex) or for refinancing of existing rupee loans under the approval route availed of from the domestic banking system for capex as per the extant norms on refinancing.
“The ECB for SPV can be raised up to 3 years after the commercial operations date of the SPV,” said RBI.
According to RBI the SPV should give an undertaking that no other method of funding, such as, trade credit (if for import of capital goods), etc. will be utilized for that portion of fresh capital expenditure financed through ECB proceeds. Besides that the ECB proceeds should be kept in a separate escrow account as per the norms on parking of ECB proceeds pending utilization for permissible end-uses and use of such proceeds should be strictly monitored by banks for permissible uses, said RBI.
RBI also said that in case of holding companies that come under the Core Investment Company (CIC) regulatory framework of RBI, there are additional terms and conditions for raising ECB for project use in SPVs. According to RBI the ECB availed is within the ceiling of leverage stipulated for CICs. This means their outside liabilities including ECB cannot be more than 2.5 times of their adjusted net worth as on the date of the last audited balance sheet and beside that in case of CICs with asset size below Rs 100 crore, the ECB availed of should be on fully hedged basis.
Courtesy: The Business Standard