INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
pany towards the acquisition of equity in over- seas joint ventures/wholly owned subsidiaries or other overseas companies, new or existing, as a strategic investment. For financing such an acquisition, an Indian acquirer can raise funds from NBFCs in India or by the issuance of NCDs, which can, inter alia, be subscribed by domestic mutual funds, AIFs and FPIs. ECB Indian companies can use ECB to acquire shares of an overseas joint venture or wholly owned subsidiary. Further, ECBs can also be used by Indian companies for business and asset acquisitions (subject to certain conditions). The guidelines issued by the RBI in relation to ECB (the “ECB Guidelines” ) stipulate provisions on various matters that need to be considered by a foreign lender when lending to an Indian bor- rower. Among other things, the ECB Guidelines regulate the following. • Eligible borrowers – entities that can raise ECB include all entities eligible to receive FDI, port trusts, units in special economic zones, the Small Industries Development Bank of India and the Export-Import Bank of India. • Recognised lenders – ECB can only be extended by: (a) a lender who is a resident of the Financial Action Task Force (FATF) or an Interna- tional Organization of Securities Commis- sions (IOSCO) compliant country; (b) multilateral and regional financial institu- tions where India is a member country; (c) individuals who are foreign equity holders or where the ECB is raised by the issu- ance of bonds/NCDs listed outside India; and (d) foreign branches or subsidiaries of Indian banks, who are permitted as recognised lenders only for foreign currency ECB
(except foreign currency convertible bonds and foreign currency exchangeable bonds). • Minimum average maturity – the mini- mum average maturity of an ECB may vary depending on the end use of the ECB. If the ECB is used for overseas investments, the minimum average maturity will be three years. No call or put options can be exercised dur- ing such a period. • All-in cost ceilings – the all-in cost ceilings include rate of interest, other fees, expenses, charges, guarantee fees and export credit agency charges, whether paid in foreign currency or Indian rupees, but exclude com- mitment fees and withholding tax payable in Indian rupees. The maximum all-in cost ceil- ing allowed for: (a) any foreign currency ECB is any widely accepted interbank rate or alternative reference rate (ARR) of six-month tenor, applicable to the currency of borrowing plus 500 basis points; and (b) rupee-denominated ECB which is the prevailing yield of the government of India securities of corresponding maturity plus 450 basis points. Offshore financing In certain cases, the Indian acquirer sets up an Offshore SPV for acquiring the target in accord- ance with the guidelines issued by the RBI in relation to overseas direct investments (the “OI Guidelines” ). The Offshore SPV then borrows funds from offshore lenders, funds, capital mar- kets and other financial institutions. Domestic Acquisition Finance Domestic acquisition finance is generally struc- tured as NCDs availed from NBFCs, FPIs or AIFs, or as loans from NBFCs. The proceeds of NCDs issued on a private placement basis
228 CHAMBERS.COM
Powered by FlippingBook