FOREIGN CURRENCY LOANS

BY
S.CLEMENT

FOREIGN CURRENCY LOANS

Exporters for working capital needs and capital
goods
Importers for import obligations such as capital
goods, RM etc
Others for WOS/JV/Short term financing such as
WC and long term for project funding new,
expansion, diversification.
Period and quantum based on the objective.
Rate of interest mostly LIBOR related.
Availment India and Overseas market
Regulators MOF and RBI.

FOREIGN CURRENCY LOANS

LENDERS IN
INDIA

LENDERS IN
OVERSEAS MARKET

CORPORATES
FINANCIAL INTERMEDIARIES

FUNDING OPTIONS
for INDIAN CORPORATES
DEBT

EQUITY

COMMERCIAL BANK LOANS

ADRs
BUYERS CREDIT
GDRs
SUPPLIERS CREDIT
FLOATING RATE NOTES (FRNs)
FIXED RATE BONDS
EXPORT CREDIT AGENCIES
COMMERCIAL BORROWINGS FROM
MULTILATERAL FINANCIAL
INSTITUTIONS (IFC/ADB/CDC etc.)

External Commercial Borrowings

Borrowing by the corporates and FI/Bank
from international markets.
ECBs include buyerscrdit, Suppliers
credit,FRN,borrowings from from IFC,ADB
etc.
Corporartes Automatic/Approval route
FIs/Banks approval route

Floating rate bonds

A bond with a variable interest rate
It is usually tied to money market index
E.g. T.Bill + 50 bp

Suppliers credit
1.
2.
3.
4.
5.

Supplier credit is a credit facility arranged at the

instance of the supplier to enable the buyer to
procure the goods on credit terms.
Suppliers credit represents credit sales by
supplier on the basis of accepted bills or
promissory notes.
Exporters ( overseas sellers) supply goods to
Indian buyers on deferred payment terms on long
term or short term basis.
Short term E.g. with a usance of 6 months.
Long term deferred terms spread over number of
years. E.g. Airbus Industry sells air craft to Air
India on defered terms basis.

Suppliers credit
1.
2.
3.
4.

Extent of credit 100%

Interest LIBOR related
Security LC/BG
Trade credit less than3 years to be
approved Ads for amount UP to USD $
20 M per import transaction. For non
capital goods , it is one year.

Buyers credit
ECA (Export Credit Agency) in overseas market
offer credit to Indian importers .
On supply of goods to importer, ECA disburses,
supplier gets the proceeds.
Encourages exports for the country.
EXIM bank extends such loans to importers
from African and south American countries to
encourage exports from India.

Buyers credit US EXIM bank

1. Eligibility international buyers purchasing US
capital equipment and services. Normally,
military or defense items are not eligible.
2. Country limitation- not available for some
countries
3. Goods eligible to meet foreign contentment
requirement( US content @ 50%) and to be
shipped from US.

Buyers credit US EXIM bank

1. Size no minimum or maximum amount.
Desirable size $10 mn.
2. Coverage 85% of value or 100% of US
content.
3. Cash payment buyer to make cash payment
of 15% of value to exporter.
4. Repayment terms determined by numerous
variable. Generally in excess of 7 years.

Buyers credit US EXIM bank

Application
Final commitment if contract has been
awarded, buyer to submit final commit
application.
Letter of interest if contract not awarded,
exporter and buyer can ask for LI containing
banks terms for specific transaction.
Preliminary commitment PC is non binding
expression of interest .Bank will accept
application from buyer.

Buyers credit US EXIM bank

Loan Guarantee
Guanteeeing term financing to credit worthy
international buyers, both private and public sector
when terms from Bank are not attractive.
For purchase of US goods and services.
Enables international buyers to obtain loans from
lenders and covers 100% of commercial and political
risk
No limit on transaction size.
Available for medium and long term financing.
Cash payment 15%

Eligible Borrowers
under Automatic Route

CORPORATES registered under The

Companies Act, 1956 except financial
intermediaries (such as banks,
financial institutions (FIs), housing
finance companies and NBFCs) and
INSTITUTIONS

Recognized lenders
ECB can be raised from recognized lenders
such as international banks,international
capital markets,multilateral financial
institutions such as IFC, ADB etc.
overseas organization willing to lend to
submit Certificate of due diligence from an
overseas bank which in turn is subject to
regulation of local regulator
In short , ECB to be availed from
internationally recognized source.

EXTERNAL COMMERCIAL
BORROWINGS
PRUDENT DEBT MANAGEMENT
_________________________________________________________

ANNUAL
MINIMUM
CEILING ON
PRIORITY FOR
CAP ON
AVERAGE
All IN COST PROJECTS IN THE
THE
MATURITIES
* Investment in Real
AGGREGATE (Effective tenor
industrial sector
AMOUNT
of the loan)
Infrastructure sector
* Small and Medium
Enterprises (SME)

AUTOMATIC ROUTE
MINIMUM AVERAGE MATURITY PERIOD
1.
2.
3.
4.
5.

UPTO USD 20 MN. OR EQUIVALENT MINIMUM 3 YEARS

ABOVE USD 20 MN. And Upto USD 500 MN. Or equivalent
MINIMUM 5 YEARS During a Financial Year.
- No Prior Approval
- To be raised from an internationally acceptable and/or
recognized lender such as :
- Export Credit Agencies, Suppliers of Equipment,
Foreign Collaborators, Foreign Equity Holders, International
Capital Markets, Reputed International Banks/Multilateral
Financial Institutions.

PURPOSES Applicable for

Automatic Route

1.
2.

3.
4.

For investment in Real-sector Industrialsector/SEZ such as :

- Import of capital goods, new projects and
Expansion of existing production units.
First stage acquisition of shares in the
disinvestment process/offer to the public under the
Governments disinvestment programme of PSU
shares.
For the development of integrated townships as
defined by Ministry of Commerce & Industry.
For refinancing of existing ECBs by raising fresh
loans at lower costs subject to the conditions that
the outstanding maturity of the original loan is
maintained.

PURPOSES Applicable for

Automatic Route - (Cont.)

ECBs cannot be raised to meet :

1. Working Capital Requirements
2. General Corporate Purposes
3. Repayment of existing Rupee
Loans
UNDER NO CIRCUMSTANCES
ECBs CAN BE USED FOR
INVESTMENTS IN REAL
ESTATE/STOCK MARKET/ONLENDING

CHARGES
1.

Interest

Ceiling on all-in-cost

Average Maturity
3 Years & Upto 5 Years
2.

Management Fees

200 basis points

More than 5 Years
350 basis points

)( OVER
( SIX MONTH
LIBOR)

* for the respective currency of

borrowing/applicable bench mark.
3.
4.
5.
6.
7.

Commitment Fees
Letter Of Comfort Charges
Legal Expenses
Prepayment Fees
Default Interest

Note : All-in-cost includes rate of interest, other fees and expenses in foreign
currency except commitment fee, pre-payment fee, and fees payable in
Indian Rupees.

AUTOMATIC ROUTE
REPORTING ARRANGEMENTS
Submission of Form 83 (in duplicate) by the borrower
through the designated Authorised Dealer duly
certified by CS/CA

One copy to be forwarded by ADs to RBI

Allotment of Loan Registration Number.

Drawdown only after obtaining the Loan

Registration Number.

ECB-2, Return to be submitted by borrowers on

monthly basis to RBI duly certified by the
designated AD.

Designated AD is also required to ensure that

raising/utilisation of ECB is a compliance with ECB
guidelines at the time of certification.

Approval route- Empowered

Committee of RBI
(Application in Form ECB to be submitted to
RBI, Central Office, ECB Division
through the designated AD)
ELIGIBLE BORROWERS

Financial Institutions dealing exclusively with infrastructure

such as ILFS,PFC, IRCONetc considered on a case by
case basis.

Banks and Financial Institutions which had participated in

the textile or steel sector restructuring package as approved
by the government to the extent of their investment
(subject to certain conditions).

Cases falling outside the purview of the automatic route

limits / maturity.

Approval route
NBFC with minimum maturity period of of 5
years
Housing finance companies
all financial intermediaries .

APPROVAL ROUTE End Use

For investment in Real-sector Industrial-sector/SEM such as :

- Import of capital goods, new projects and Expansion of existing
production units.
First stage acquisition of shares in the disinvestment process/offer to
the public under the Governments disinvestment programme of PSU
shares.
For the development of integrated townships as defined by Ministry of
Commerce & Industry.
For refinancing of existing ECBs by raising fresh loans at lower costs
subject to the conditions that the outstanding maturity of the original
loan is maintained.

ECBs CANNOT BE USED FOR INVESTMENTS IN CAPITAL MARKET /

ON-LENDING Except for Banks and Financial Institutions eligible to
borrow under Approval Route.
CANNOT BE USED FOR REAL ESTATE.
(Average maturity All-in costs same as in Automatic Route.)

MISCELLANEOUS (Cont.)
* PREPAYMENT Upto USD 200 Mn. Without RBI
prior approval
subject to compliance with the
stipulated minimum average maturity period.
Guarantees by banks and NBFC in India not
permitted
Security left to the discretion of borrower and
lender

Approval route
Company

Amount in USD

purpose

yrs

MOL
inoform.India

700,000

Modern. 4.1

EXIM bank

56,635,236

Sub
lending

Tata steel

500,000,000

Mod.

9 1/2

Seri infra.finan

50,000,000

imports

5.1

IRCON

126,460,572

Re exp.

FCL
FCL raised in 06 was $5.5 bn as against $ 3.3
bn in 05.
Indian issuances were at around 68% of Asia
Pacific issuances, which was around $8.8 bn
It includes wide spectrum of industries such as
automobile, aviation, cement, pharma and
sugar.
China & Hong Kong are likely to join the race.

FCL
Growth in FCCB is mainly on account of
regulatory arbitrage it is much simpler and
quicker to raise money through FCCBs
compared to domestic issues.
Difference in the cost of fund raising in the
domestic market and foreign market has
narrowed down.

Major FCCBS in 06

Name of the company

AMOUNT ($) in mn

RANBAXY
TATA MOTORS
L&T
JAYAPRAKASH
VIDEOCON
Jubliant organosys
Mahindra & Mahindra
Reliance Industries
Shippin corporation

400
100
100
125
90
200
200
1515
1038

FCNR LOANS
FCL given by banks in India mainly to
corporates for FX and domestic
requirements.
Purpose WC requirements, import of
raw materials, import of capital goods,
purchase of indigenous machinery,
repayment existing term loans,
repayment of ECB with prior of RBI ETC
Can be availed by earmarking working
capital facilities.

FCNR (FC non resident) LOANS

It is mainly useful for Mid size corporate who
may not be able to access overseas market for
want of rating, volumes etc.
Interest LIBOR related. So lower rate of
interest.
Purpose capital /WC expenditure and FX
requirements.
Earmarking WC limits after fresh credit
evaluation.
Interest rates Based on credit rating.

FCNR LOANS
Funds support from FCNR deposits,
EEFC, RFC and Nostro balances
Period 1 to 3 years to manage ALM
(asset liability mgmt)
Repayment in FC
Hedging of risk Forward cover / natural
hedge.
Banks with meager funds difficult to
meet customer requirement

PCFC (Packing credit in foreign

currency)
Working capital loan in FC for financing of inventory up
to preshipment stage for exporters.
To fund FX requirements such as import of raw material
etc and also rupee requirements.
LIBOR related rates
No exchange risk due to natural hedge.
Normally availed in major 4 FC.
Cross currency drawls also available. Exchange risk to
be borne by the customers.
Not available for sub suppliers

PCFC (Packing credit in foreign

currency)
Running a/c is permitted
Existing limits can be earmarked.
Period up to the date of shipment or 180
days which ever is earlier. Extension is
permitted.
Repayment with proceeds of export bills.
Exchange profit for exporters.
ECGC cover available for banks.

FCL
Export credit in FC shot up from Re 2853 cr
in 02 to 31,277 cr in 04.
Export credit in Re was 51714 cr in 02 to
48391 cr in 04.
Loans raised - $ 5.9 bn during 2004-05.
Total External Debt - $ 123.3 bn

% of External Debt -04-05

Trade credit

4%

ECB

22%

Buyers credit

2.4%

Suppliers credit

0.7%