EXTERNAL COMMERCIAL BORROWING (ECB) TO BE RAISED BY SOFTWARE COMPANY

Article explains Eligibility Recognised lenders, Currency of borrowing, End-uses (Negative list), Minimum Average Maturity Period, Limit, Debt-Equity Ratio, All-in-cost ceiling per annum, Other costs and Reporting Requirement in respect of External Commercial Borrowing to Be Raised By Software Company

1. Eligibility

 

Software Sector space who are into development of software are eligible to raise ECB. Companies who are into designing and engineering consultancy, servicing of third-party software, providing ancillary IT related services, ITeS, etc., are not considered as software development companies for ECB purposes. 
2. Recognised lenders Holding Company is a recognised lender under the ECB guidelines. However, the lender should be resident of FATF or IOSCO compliant country, including on transfer of ECBs.
3. Currency of borrowing Any freely convertible Foreign Currency OR  Indian Rupee (INR)
4. End-uses (Negative list) The negative list, for which the ECB proceeds cannot be utilised, would include the following:

a) Real estate activities.

b) Investment in capital market.

c) Equity investment.

d) Working capital purposes except from foreign equity holder*.

e) General corporate purposes except from foreign equity holder.

f) Repayment of Rupee loans except from foreign equity holder.

g) On-lending to entities for the above activities.

5. Minimum Average Maturity Period Minimum average maturity period (MAMP) will be 3 years. Further, if the ECB is raised from foreign equity holder and utilised for working capital purposes, general corporate purposes or repayment of Rupee loans, MAMP will be 5 years. The call and put option, if any, shall not be exercisable prior to completion of minimum average maturity.
6. Limit All eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year under automatic route.
7. Debt-Equity Ratio In case of FCY denominated ECB raised from direct foreign equity holder ECB liability-equity ratio for ECBs raised under the automatic route cannot exceed 7:1. However, this ratio will not be applicable if outstanding amount of all ECBs, including proposed one, is up to USD 5 million or equivalent.
8. All-in-cost ceiling per annum  Benchmark rate plus 450 bps spread.
9. Other costs Prepayment charge/ Penal interest, if any, for default or breach of covenants should not be more than 2 per cent over and above the contracted rate of interest on the outstanding principal amount and will be outside the all-in-cost ceiling.
10. Reporting Requirement Borrowings under ECB Framework are subject to following reporting requirements:

a. To obtain Loan Registration Number (LRN);

b. To inform in case of changes in terms and conditions of ECB;

c. Monthly Reporting of actual transaction.

 *  Foreign Equity Holder: It means (a) direct foreign equity holder with minimum 25% direct equity holding by the lender in the borrowing entity, (b) indirect equity holder with minimum indirect equity holding of 51%, or (c) group company with common overseas parent.

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Qualification: CS
Company: Mohammad Khalid & Associates
Location: DELHI, New Delhi, IN
Member Since: 12 Mar 2019 | Total Posts: 4
Mohammad Khalid is a Practicing Company Secretary based at New Delhi. Khalid is a graduate in Law and Commerce and an Fellow Member of The Institute of Company Secretaries of India (ICSI). He possess more than five years of experience in handling legal, secretarial and regulatory work, India entry View Full Profile

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