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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