ALL ABOUT ECB REGULATIONS, FDI in LLPs, OPTIONALITY CLAUSE in FDI REGULATION, PARTLY PAID SHARES AS FDI , ISSUING NCPS/NCD/RPS AS BONUS SHARES, ISSUE OF WARRANTS , ISSUING NCPS/NCD/RPS AS BONUS SHARES, ISSUE OF SHARES AGAINST LEGITIMATE DUES

ALL ABOUT ECB REGULATIONS, FDI in LLPs, OPTIONALITY CLAUSE in FDI REGULATION, PARTLY PAID SHARES AS FDI , ISSUING NCPS/NCD/RPS AS BONUS SHARES, ISSUE OF WARRANTS , ISSUING NCPS/NCD/RPS AS BONUS SHARES,  ISSUE OF SHARES AGAINST LEGITIMATE DUES

 

·        ECBs governed by clause (d) of sub-section 3 of section 6 of the Foreign Exchange Management Act,   1999

·        (FEMA). Notifications No. 3, 120 & 8

 

ECB

^v                                          Definition of ECB - Commercial loans raised by eligible resident entities from recognised non-resident entities and should conform to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc.

^v                                          Various Parameters

 

^v                                          Whether they apply individually or in tot0 ?

 

FORMS OF ECB

·        Loans including bank loans

·        Securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares / debentures)

·        Buyers’ Credit

·        Suppliers’ Credit

·        Foreign Currency Convertible Bonds (FCCBs) Financial Lease and

·         Foreign Currency Exchangeable Bonds (FCEBs)

                              

ECB FRAMEWORK & ROUTES

 

·        Track I : Medium term foreign currency denominated ECB with minimum average maturity of 3/5 years.

 

·        Track II : Long term foreign currency denominated ECB with minimum average maturity of 10 years.

 

·        Track III : Indian Rupee (INR) denominated ECB with minimum average maturity of 3/5 years.

 

·        Two Routes – Automatic & Approval

 

           TRACK I – ELIGIBLE BORROWERS

 

·        Companies in manufacturing and software development sectors.

 

·        Shipping and airlines companies.

 

·        Small Industries Development Bank of India (SIDBI).

 

·        Units in Special Economic Zones (SEZs).

 

·        Export Import Bank of India (Exim Bank) (only under the approval route).

             TRACK I RECOGNISED LENDERS

 

·        International banks.

·        International capital Markets

·        Multilateral financial institutions / regional financial institutions and Government owned (either wholly or partially) financial institutions.

·        Export credit agencies.

·        Suppliers of equipment.

·        Foreign equity holders.

 

·        Overseas long term investors

 

·        Overseas branches / subsidiaries of Indian banks

                   TRACK I – MINIMUM AMP

·        3 years for ECB up to USD 50 million or its  equivalent.

 

·        5 years for ECB beyond USD 50 million or its equivalent.

                     TRACK I – ALL IN COST

It includes rate of interest, other fees, expenses, charges, guarantee fees whether paid in foreign currency or Indian Rupees (INR) but will not include commitment fees, pre-payment fees / charges, withholding tax payable in INR Should not exceed:

 

·        For ECB with minimum average maturity period of 3 to 5 years - 300 basis points per annum over 6 month LIBOR or applicable bench mark for the respective currency.

 

·        For ECB with average maturity period of more than 5 years - 450 basis points per annum over 6 month LIBOR or applicable bench mark for the respective currency.

                          TRACK I – END USE

Permissible end uses include new project, import of capital goods, local sourcing of capital goods, modernisation, ODI, etc.

             TRACK II - ELIGIBLE BORROWERS

·        All entities listed under Track I. Companies in infrastructure sector. Holding companies.

 

·        Core Investment Companies (CICs).

·        Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs) coming under the regulatory framework of the Securities and Exchange Board of India (SEBI).

TRACK II RECOGNISED LENDERS

·        All entities listed under Track I but for overseas branches / subsidiaries of Indian banks.

TRACK II – MINIMUM AMP

·        10 years irrespective of the amount of borrowing

TRACK II – ALL IN COST

 

·        The maximum spread over the benchmark will be 500 basis points per annum.

·        Remaining conditions such as penal interest will be as given under Track I.

 

TRACK II – END USE

·        The ECB proceeds can be used for all purposes excluding the following:

 

·        Real estate activities Investing in capital market

 

·        Using the proceeds for equity investment domestically

 

·        On-lending to other entities with any of the above objectives

 

·        Purchase of land

 

·        Holding companies can also use ECB proceeds for providing loans to their infrastructure SPVs.

TRACK III - ELIGIBLE BORROWERS

 

·        All entities listed under Track II.

 

·        All Non-Banking Financial Companies (NBFCs).

 

·        NBFCs-Micro Finance Institutions (NBFCs-MFIs), Not for Profit companies registered under the Companies Act, 1956/2013, Societies, trusts and cooperatives (registered under the Societies Registration Act, 1860, Indian Trust Act, 1882 and State-level Cooperative Acts/Multi-level Cooperative Act/State-level mutually aided Cooperative Acts respectively), Non-Government Organisations (NGOs) which are engaged in micro finance activities.

 

·        Companies engaged in miscellaneous services viz. research and development (R&D), training (other than educational institutes), companies supporting infrastructure, companies providing logistics services.

 

·        Developers of Special Economic Zones (SEZs)/ National Manufacturing and Investment Zones (NMIZs).

TRACK III RECOGNISED LENDERS

 

·        All entities listed under Track I but for overseas branches / subsidiaries of Indian banks. In case of NBFCs-MFIs, other eligible MFIs, not for profit companies and NGOs, ECB can also be availed from overseas organisations and individuals

TRACK III – MINIMUM AMP

 

·        3 years for ECB up to USD 50 million or its equivalent.

 

·        5 years for ECB beyond USD 50 million or its equivalent.

 

TRACK III – ALL IN COST

·        The all-in-cost should be in line with the market conditions.

 

TRACK III – END USE

 

·        Eligible end uses for NBFCs

 

·        Eligible end use for Developers of SEZs/ NMIZs.

 

·        Eligible end uses for NBFCs-MFI, other eligible MFIs, NGOs and not for profit companies registered under the Companies Act, 1956/2013

 

·        For other eligible entities under this track, the ECB proceeds can be used for all purposes excluding the following:

 

·        Real estate activities Investing in capital market

 

·        Using the proceeds for equity investment domestically;

 

·        On-lending to other entities with any of the above objectives;

 

·        Purchase of land

PERMISSIBLE AMOUNT

·        IN A FY under automatic route

 

·        Up to USD 750 million or equivalent for the companies in infrastructure and manufacturing sectors;

 

·        Up to USD 200 million or equivalent for companies in software development sector;

 

·        Up to USD 100 million or equivalent for entities engaged in micro finance activities; and

 

·        Up to 500 million or equivalent for remaining entities.

 

RUPEE DENOMINATED BONDS RAISED OVERSEAS

 

·        Form of borrowing

·        Available and Routes

·        Minimum Maturity

·        Eligible entities

·        Recognised Lenders

·        All-in-cost

·     Permissible End uses

FDI REGULATION

OPTIONALITY CLAUSE

 

Obligation for buy-back of securities from the investor at the price prevailing/value determined at the time of exercise of the optionality so as to enable the investor to exit without any assured return

·        Minimum lock-in period Exit as under:

·        Listed company- market price prevailing at the recognised stock exchanges;

·        Unlisted company - at a price not exceeding that arrived at on the basis of Return on Equity (RoE) as per the latest audited balance sheet.

·        RoE = Profit After Tax / Net Worth; Net Worth would include all free reserves and paid up capital.

·        Investments in CCDs and CCPS of an investee company may be transferred at a price worked out as per any internationally accepted pricing methodology at the time of exit duly certified by a Chartered Accountant or a SEBI registered Merchant Banker.

FDI IN LLP

·        Under Approval Route for LLPs formed and registered under the Limited Liability Partnership Act, 2008

Eligible Investors

 

·        Only in sectors where 100% FDI is allowed other than those linked to performance linked conditions

 

·        Pricing guidelines

·        Mode of Payment

 

·        Reporting in Form LLP – I and Form LLP-II

·        No downstream investment by LLPs

·        No ECBs

PARTLY PAID SHARES AS FDI

·        Pricing shall be determined upfront

 

·        25% of the total consideration amount ( including share premium, if any), shall be received upfront balance consideration within a period of 12 months. The time period shall not be insisted upon where the issue size exceeds Rs. 500 crore and the issuer complies with Regulation 17 of the SEBI (ICDR) Regulations regarding monitoring agency.

 

·        For unlisted Indian company, the balance consideration amount can be received after 12 months where the issue size exceeds rupees five hundred crores if a monitoring agency is appointed.

WARRANTS

·        Pricing of the warrants and price/ conversion formula shall be determined upfront

 

·        25% of the consideration amount shall also be received upfront.

 

·        Balance consideration towards fully paid up equity shares shall be received within a period of 18 months The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such warrants, in accordance with the extant FEMA Regulations and pricing guidelines stipulated by RBI from time to time.

ISSUE OF SHARES AGAINST LEGITIMATE DUES

 

Under automatic route for dues remittance of which does not require prior permission of the GoI or RBI subject to:

 

The equity shares shall be issued in accordance with the extant FDI guidelines on sectoral caps, pricing guidelines etc. (Import dues deemed as ECB or trade credit or payable against import of second hard machinery under GoI) The issue of equity shares shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes.

ISSUING NCPS/NCD/RPS AS BONUS SHARES

 

An Indian company may issue non-convertible/redeemable preference shares or debentures to non-resident shareholders, including the depositories that act as trustees for the ADR/GDR holders, by way of distribution as bonus from its general reserves under a Scheme of Arrangement approved by a Court in India under the provisions of the Companies Act, as applicable, subject to no-objection from the Income Tax Authorities.

OTHER RELAXATIONS

 

·        For a liability to be converted which is denominated in FCY (ECB, import of capital goods, etc.), the exchange rate prevailing on the date of the agreement has to be taken.

 

·        Revision in Form FC-GPR to capture brownfield/greenfield investment

 

·        Reporting mechanism for Transfer of Shares Sector specific liberalization for Defense, Railways and Construction Development, Manufacturing of Medical Devices and Insurance