Govt allows companies to raise $1 bn of ECBs in Yuan

In significant policy shift, the government today decided to allow corporates to raise external commercial borrowings (ECBs) in Yuan (Renminbi) equivalent to USD 1 billion, a move that will help companies trading with China.

"For the first time we are allowing Yuan (Renminbi), (equivalent of USD 1 bn) as an acceptable currency under ECB, basically for infra and capital goods", Department of Economic Affairs Secretary R Gopalan told reporters after a meeting of the High-Level Coordination Committee on ECBs. Giving rationale for the decision, he said, "Yuan wants to play much bigger role...certainly there is market for it." The decision to allow companies to raise ECBs in Yuan will benefit infrastructure firms like ADAG Group company Reliance Power and Lanco Infratech. Although the committee did not raise the overall ceiling of ECB which is currently at USD 30 billion, it did decide to relax the norms and raise the borrowing limits for various sectors to help the companies obtain funds from overseas markets at competitive rates. Out of the total limit of USD 30 billion, ECBs amounting to USD 15.93 billion have been raised by the companies until August 2011. The government, Gopalan said, will also be looking at the possibility of reducing withholding tax on the ECBs. "Withholding tax will be brought down, we are interacting with department of revenue", he added. The decision to relax ECB norms follows the suggestions made by top industry leaders at a meeting last month with Finance Minister Pranab Mukherjee to boost the economy. The limit of external borrowings with tenure of 5 years or more under the automatic route has been increased from USD 500 million to USD 750 million. The decision will help the companies across all segments to access higher quantum of overseas funds, he said. For the services sector, Gopalan said, the ECB limit under the automatic route has been doubled to USD 200 million and for NGOs from USD 5 million to USD 10 million. Referring to the overall ECB ceiling, he said, "if there is a requirement for additional money through ECBs, particularly in infrastructure sector, we can go beyond the USD 30 billion limit depending upon the requirement...We are quite positive. The cap remains at USD billion 30 billion but this can be relaxed depending upon the requirement." On allowing High Networth Individuals (NHIs) to invest in infrastructure debt funds, he said, "the committee held a view that HNIs ... be permitted to invest in infrastructure debt funds without any ceiling under the ECB route." As regards refinancing of rupee loans through ECBs, he said, 25% of the amount raised from overseas sources could be used to repay debts for infrastructure sector projects. The refinancing of buyers/suppliers credit through ECB, he added, would be permitted for infrastructure sector projects or capital goods segment. On allowing ECBs for slum rehabilitation project around Mumbai International Airport, he said, "the view was that we should not fuel real estate boom through ECB route, therefore it is not being permitted."