Saturday, October 15, 2011

EXTERNAL COMMERCIAL BORROWINGS FROM THE FOREIGN EQUITY HOLDERS

As per the extant ECB policy, a 'foreign equity holder' to be eligible as 'recognized lender' under the automatic route would require minimum holding of paid-up equity in the borrower company as set out below:

  • for ECB up to USD 5 million - minimum paid-up equity of 25 per cent held directly by the lender,
  • for ECB more than USD 5 million - minimum paid- up equity of 25 per cent held directly by the lender and debt-equity ratio not exceeding 4:1 (i.e. the proposed ECB does not exceeds four times the direct foreign equity holding).

Henceforth, besides the paid-up capital, free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet shall be reckoned for the purpose of calculating the equity of the foreign equity holder. Where there are more than one foreign equity holder in the borrowing company, the portion of the share premium in foreign currency brought in by the lender(s) concerned shall only be considered for calculating the ECB liability-equity ratio for reckoning quantum of permissible ECB.

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