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Assocham for relaxing end-use restrictions for issuance of ECBs/FCCBs to help infrastructure cos. raise long-term funds
With a view to help capital-starved infrastructure companies, industry body Assocham has advocated relaxing end-use restrictions for issuance of external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs) to facilitate raising long term funds.
In a note submitted to the FM, Assocham has recommended for permitting infrastructure companies to use the proceeds of the ECBs/FCCBs for repayment of rupee loans and for infusion of capital into project special purpose vehicles (SPVs)/sector holding companies in form of equity/debt/subordinate debt.

Many global sovereign wealth funds (SWFs) are approaching infrastructure companies for ECBs/FCCBs funding which can be a good source of foreign exchange inflows to India, highlighted the Assocham note.

Considering that SWFs are government-owned financial institutions, Assocham has urged the FM to permit them as recognised lenders since they are not explicitly mentioned as the same in Reserve Bank of India (RBI) Circular.

Most infrastructure companies had availed of corporate (holding company) debt to finance projects as equity capital markets were depressed in last 3-4 years and the funds so raised have been invested in underlying project SPVs as equity, preference shares and quasi-equity in form of promoter loans/sub-ordinate debt for project related expenditure, the chamber's note added.

However, due to the aforementioned economic challenges, underlying project SPVs have not been able to generate stable cash flows which can be used to fulfil debt obligation of holding company.

"Various infrastructure companies are considering raising funds in form of FCCBs in order to retire some of the corporate debt and improve their stretched balance sheets," said D.S. Rawat, Secretary General of Assocham in a statement.

"The usage of FCCB proceeds to retire their debt partially or fully shall help in restoring the financial health of infrastructure companies, reduce dependence on domestic banks and help it leverage the benefit of current government push towards development of infrastructure in India," said Rawat.

"This may also help Indian banks to enhance their asset quality by bringing down non-performing assets on their books," he added.

The Assocham note to FM also highlighted that if FCCBs raised by infrastructure companies are of long-term tenure, it will be structurally akin to preference equity rather than to debt and are likely to be considered as equity for accounting and rating purposes.

Besides, utilisation of ECBs/FCCBs proceeds for investment in the SPVs by way of equity/preference shares/subordinate debt will provide infrastructure companies an option to fund infrastructure development in India without any impediments.

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