Infra Cos gets nod for ECBs

New Delhi: The government allowed infrastructure companies to raise up to $100 million through external commercial borrowings (ECBs) for rupee expenditure under the approval route. The move is expected to boost investments in airports, ports and power projects.

The infrastructure sector requires $500 billion worth of investment during the 11th Five-Year Plan (2007-12), of which $30 billion is expected to come through the ECB route.

The government also hiked overseas borrowing limits for Indian companies to $50 million under the approval route. The earlier limit of $20 million had been imposed last August.

However, the existing $500-million annual borrowing limit for individual companies through the automatic route has been left unchanged. Other aspects of the ECB policy such as the end-use of foreign currency expenditure for import of capital goods and overseas investments, average maturity period, pre-payment, refinancing of existing ECB and reporting arrangements have also been left unchanged.

The government has also increased the interest rate ceilings over six month LIBOR, thus allowing Indian companies to borrow at a higher interest rate. In respect of ECBs for average maturity period of three to five years, the interest rate ceiling has been raised to 200 basis points (bps) from the current 150 bps. For borrowings of more than five years, the cost has been increased to 350 bps from 250 bps at present.

Analysts expect higher capital flows as a result of the relaxed ECB norms, which will ease pressure on the forex market and liquidity front at the same time. The rupee has depreciated significantly due to higher demand of dollar due to the swelling crude oil prices.

The government also increased the Foreign Institutional Investors' (FIIs') investment limits in government securities and corporate bonds to $5 billion and $3 billion, respectively.

At present, FIIs registered with SEBI are permitted to invest up to $3.2 billion and $1.5 billion, respectively. Analysts said the move is likely to boost the corporate bond market and help the government raise funds at competitive rates.