SEZ Developers Can
Raise Foreign Debt to Create Infrastructure; 6-Month Extension for Builders of
Integrated Townships
Companies that
have violated external commercial borrowing (ECB) norms will not be able to
raise fresh overseas loans through the ‘automatic route’ where they don’t need
prior approval from the central bank, rule changes announced by the finance
ministry show.
The modified
rules, however, have opened the doors for developers of special economic zones
to raise foreign debt for creating specified infrastructure facility in the
zones. The amendments also extend the external borrowing window for developers
of integrated townships to December 2009.
“Currently, the
ECB policy is not explicit about accessing of ECB by corporates that have
violated the extant ECB policy and are under investigation by the Reserve Bank
of India or
Directorate of Enforcement. It is clarified that any request by such corporates
for ECB will be examined under the approval route,” a statement said.
The move will
come as a big setback for companies that have been found guilty of or have an
ongoing investigation against them for ECB violation: approvals may not come
easy for them.
Opening up of
the ECB route for SEZ developers comes at the right time, especially in the
backdrop of some companies such as DLF
and the Raheja Group dropping plans to float IT SEZs due to lack of funds.
“This is a very
positive step as SEZs have been adversely affected due to slackening of demand
and non-availability of funds. Now that RBI has permitted ECB funding to SEZ
developers for creation of infrastructure like industrial parks, ports and
power, it would certainly help them in mobilising funds for development of the
processing area as well as development of other social infrastructure in
non-processing area. RBI should also issue clear instructions that lending to
SEZs shall be on terms and conditions which are applicable for infrastructure
lending,” said LB Singhal, director general, Export Promotion Council for
Export-oriented Units and SEZs.
Opening up the
overseas borrowing window further for large borrowers such as SEZ developers
would improve availability of credit for small and medium enterprises.
But SEZ
developers cannot raise ECB for building integrated townships or commercial
real estate within the zone. They can raise overseas loans only after taking approval
for establishing infrastructure facilities.
Real estate developers that build
integrated townships have also been allowed to raise foreign loans up to
December, a facility that was to close on June 30 this year. Integrated
townships comprise houses and other urban amenities like commercial premises,
hotels, resorts, roads and bridges built in an area of at least 100 acres. The
government had opened the foreign borrowing window for developers of integrated
townships on January 2 as part of the stimulus measures and the facility has
been extended until December to make a meaningful impact on the sector which
has been hit hard by fall in demand.
A relaxation has
also been made for non-banking finance companies (NBFCs) exclusively involved
in financing of the infrastructure sector that were permitted to raise ECBs
from multilateral or regional financial institutions and government-owned
development financial institutions for on-lending to the borrowers in the
infrastructure sector under the approval route. The condition that the direct
lending portfolio of the eligible lenders vis-à-vis their total ECB lending to
NBFCs at any point of time should not be less than 3:1 has been scrapped.
