Infrastructure Companies Concerned About Refinancing Rupee Loans Under New ECB Framework

Infrastructure industry players have raised concerns over the new external commercial borrowing (ECB) framework unveiled by the Reserve Bank of India last week, as it makes repayment of rupee-denominated loans to domestic lenders from ECB proceeds impossible.

As BusinessLine has learnt from several infrastructure industry sources, the ECB framework has been modified by the RBI in such a way that Track-I and Track-II of ECB that existed in the earlier framework, have been merged as ‘Foreign Currency ECB’.

However, the existing permissible end-use of repayment or refinancing of rupee loans availed under Track-II of ECB has not been considered in the merged Foreign Currency ECB framework.

The repayment of rupee loan has been included in the negative list of end-uses (for which ECB proceeds cannot be utilised) in the new ECB framework.

The National Solar Energy Federation of India (NSEFI), on Saturday, wrote to the PMO requesting intervention in the matter and advising RBI to carve out a special category (similar to previously used Track-II) with ECB Minimum Average Maturity Period of 5 years and above within the new merged Foreign Currency ECB category to permit corporates to repay their rupee loans to domestic lenders from ECB proceeds. NSEFI has also requested rationalisation of the new ECB Framework to exclude repayment of rupee loans from the negative list.

“You are aware that all the infrastructure projects in general, and Renewable Energy generation projects like wind and solar in particular, require a huge amount of funds for development. Such RE projects require long-term financing for 20-25 years. Dearth of domestic debt funds for renewable power projects, whether high cost or not, is already an impediment in achieving the ambitious goal of 175 GW of renewable energy projects set by the Centre by FY 2022,” the NSEFI letter argues.

It adds that overseas lenders are reluctant to undertake project construction risks before commercial operation due to risks related to land acquisition and availability of transmission infrastructure.

In such a scenario, renewable energy developers and, similarly, other infrastructure sector companies, initially borrow funds from domestic lenders at high cost and after the project is commissioned, start generating revenue, refinance the rupee loans with lower cost foreign currency loans by way of ECBs from foreign lenders. "Refinancing such rupee loans by availing ECB is an accepted alternate funding tool for renewable energy project developers in the current low liquidity and low appetite domestic financial market,” the letter noted.

If the new ECB framework is not changed, this mode of refinancing would be ruled out for infrastructure companies that have been struggling on account of a liquidity crunch and non-availability of fresh funding from Indian lenders. It could also affect the bond market, industry players argue, as refinancing of existing projects with ECB proceeds would not be possible while refinancing is considered one of the key criteria for stable bond yields.

According to industry sources, more such representations would be made to the government and RBI via various industry bodies.

RBI came out with a new ECB framework in order to further improve the ease of doing business in India. While the framework was simplified, it also allowed eligible borrowers to raise up to $750 million in each financial year under the automatic route, replacing the existing sector-wise limits. The central bank has also expanded the list of eligible borrowers and recognised lenders.