project financing in foreign currency

8/6/2019 Project Financing in Foreign Currency

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By

Bharat Sai Kiran

Amity International Business School

A1802010093


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y Project finance is the long term financing ofinfrastructure and industrial projects based upon the

projected cash flows of the project rather than the

balance sheets of the project sponsors.

y Sponsors has to think these things:y Cost of the Project

y Cash inflows to repay that project which is financed

y Risk Involved in the project


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y Those sources of funds which are raised from thedomestic market are called as internal sources theyare:y

Reserves and Surplusy Shares

y Debentures

y Bonds

y Venture Capital Markets

y Etc


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y ADRs- American Depository Receipts

y GDRs- Global Depository Receipts

y ECBs - External Commercial Borrowings

y

FCCB Foreign Currency Convertible Bondsy FCEBs-Foreign Currency Exchange Bonds

y Etc.


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y Asource of funds for financing expansion of existingcapacity and for fresh investment out of territory

y External Commercial Borrowings (ECB) refer to

commercial loans availed from non-resident lendersy It Includes:

y Commercial Bank Loans

y Buyers Credit

y Suppliers Credity Securitized Instruments

y Credit from Export Credit agencies

y Fixed rate bonds


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yScarcity of Funds in DomesticMarket.

yCheaper than Domestic Debt.


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y Regulated under Section 6, Sub Section3 of FEMA(Foreign Exchange Management Act) 1999

y Policies:

y Permitted by the Government as a source of financefor Corporate to expand their existing capacity & forfresh investment

y Greater priority for projects in the infrastructure,

Power, oil, telecom, railways, Roads & Bridges,Ports, Industrial parks, urban Infrastructure &export sector.


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y Automatic Route:y ECB for investment in real sector -industrial sector, especially

infrastructure sector-in India, are under Automatic Route, i.e. donot require RBI permission .

y

Government approval. In case of doubt as regards eligibility toaccess

y Approval Route:y ECBs for investment which participated in the textile

and steel sector restructuring package requires approvalfrom RBI.

Ways of Raising ECBs?


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Automatic Route Approval Route


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Automatic Route: Approval Route


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y Security to be provided to the overseas lender/Supplier for securing ECBs is left to the borrower.

y Creation of charge over the immovable assets andfinancial securities, such as shares in favor of the

overseas lender are subject to regulation 8 ofnotification no FEMA20/RB 2000.


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y The choice of security for the ECB is left with the

borrower however the creation of charges overimmovable assets or financial securities in favor of anoverseas lender is subject to the regulation by the RBI.

y The creation of security requires a No Objection

certificate from the Category I AD.

y UnderAutomatic Route:y Prohibition on the issuance of guarantees by Banks,

Financial Institutions and NBFCs.

y UnderApproval Route:y Banks, FIs, and NBFCs may issue a guarantee , subject to

obtaining prior approval from the RBI.


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y

ECBs entered into under either route can be servicedwithout any prior approval and the amount ofprincipal, interest and other charges can be remittedfreely through an AD.

y Existing ECBs can be refinanced by fresh ECBsprovided that the fresh ECB is at a lower all-in-cost andthe outstanding maturity, tenor and other terms of the

existing ECB are maintained.


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project financing in foreign currency

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