INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
3.5 Private Placements/Loan Notes ECB issued as bonds can be privately placed with the eligible lenders outside India. An offer or invitation to subscribe to privately placed NCDs can be made to no more than 200 per- sons on aggregate in a financial year. Unlisted NCDs need to comply with the Companies Act. Further, if the bonds are listed on a recognised stock exchange in India, their issuance should follow the guidelines issued by the SEBI in this regard, in addition to the Companies Act. 3.6 Asset-Based Financing As discussed in 5. Security , security can be cre- ated (to the extent discussed therein) for vari- ous financings that may be availed of for funding acquisitions. Acquisition finance (as discussed throughout 3. Structures ) can also be asset- backed. The borrower in such structures is usu- ally required to maintain a certain loan-to-value (LTV) ratio or security cover ratio. Intercreditor agreements are common in the Indian market, where security is shared between multiple lenders. The intercreditor agreements provide for arrangements between various classes of creditors. Generally, the borrower is not a party to the intercreditor agreement. How- ever, it executes an acknowledgement to the intercreditor agreement. Intercreditor agreements govern the following (inter alia): • ranking of security and order of priority among the creditors; 4. Intercreditor Agreements 4.1 Typical Elements
• optionally or partially convertible debentures. However, if the mezzanine finance is provided by an offshore entity, optionally or partially convert- ible preference shares or optionally convertible debentures are treated as ECB and must comply with the ECB Guidelines. 3.3 Bridge Loans Bridge loans for acquisition finance are need- based and are raised pending the tie-up of the final financing for the acquisition. These bridge loans for acquisition finance are generally availed from NBFCs. ECBs cannot be structured as bridge loans due to their minimum average maturity period requirement. Further, NCDs with a maturity period of less than one year are sub- ject to conditions under the RBI NCD Guidelines and are not prevalent. 3.4 Bonds/High-Yield Bonds ECB can be raised from abroad by issuing bonds. Such bonds can be either listed or unlisted. Giv- en that such bonds are required to comply with the all-in cost ceilings under the ECB Guidelines, such bonds are generally not high-yield. Domestically, bonds are issued as NCDs. Where the issuers are not investment grade, the NCDs can be high-yield bonds as there is no inter- est cap for the NCDs. The return on the NCDs can be linked to the returns on other underlying securities/indices. However, such NCDs must comply with the structured product guidelines issued by the SEBI. An Offshore SPV may also issue bonds outside India for financing the acquisition of shares of an Indian company.
230 CHAMBERS.COM
Powered by FlippingBook